## ANNUAL ## REPORT ## 2022 ### About this report Annual Report 2022 About this report: This Annual Report is a summary of the operations, activities and performance of This report is a summary of our operations, activities, performance 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 and financial position as at 30 June 2022. 30 June 2022. South32 Limited is the parent company of the South32 group of companies. In this Our 2022 Annual Reporting Suite report, unless otherwise stated, references to South32, the South32 Group, the Group, we, us, our and similar expressions refer to South32 Limited and its You can view all the documents in our Annual Reporting Suite controlled entities and South32-operated joint arrangements. In addition to South32’s wholly owned entities and South32-operated joint arrangements, this at www.south32.net, including: 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 Sustainable Sustainability Corporate Governance approach to risk, see page 26. Development Report Databook Statement 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. Modern Slavery Tax Transparency Statement and Payments (1) In this report, references to ‘joint arrangements’ mean operations that are not to Governments Report wholly owned by South32, such as joint ventures and joint operations. Joint arrangements are classified in accordance with IFRS 11 Joint Arrangements. ### We acknowledge and pay our respects to the Indigenous, Traditional ### and Tribal Peoples of the lands, waters and territories on which South32 Cover: A geotechnical engineer at our ### Cannington operation in Australia. is located and where we conduct our business around the world. Below: Anindilyakwa people on Groote ### Eylandt in Australia’s Northern Territory. 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. ## ACKNOWLEDGEMENT | TAX TRANSPARENCY AND SUSTAINABLE SUSTAINABILITY MODERN CORPORATE PAYMENTS TO GOVERNMENTS DEVELOPMENT DATABOOK SLAVERY | | --- | | GOVERNANCE REPORT 2022 REPORT 2022 2022 STATEMENT STATEMENT | | 2022 2022 | OPERATING AND FINANCIAL REVIEW ## Contents ### OPERATING AND FINANCIAL REVIEW | About this report | IFC | | --- | --- | | About us | 2 | | Year in review | 3 | | From the Chair | 4 | | From the CEO | 6 | | South32 at a glance | 8 | | Our business model | 10 | | Our commodities | 12 | | Our sustainability approach | 14 | | Our impact | 16 | | Our strategy | 18 | | Progress against our strategy | 20 | | Risk management | 26 | | Financial and operational performance summary | 36 | ### GOVERNANCE | Board of Directors | 64 | | --- | --- | | Directors' report | 68 | | Lead Team | 72 | | Remuneration report | 74 | ### FINANCIAL REPORT | Consolidated income statement | 104 | | --- | --- | | Consolidated statement of comprehensive income | 105 | | Consolidated balance sheet | 106 | | Consolidated cash flow statement | 107 | | Consolidated statement of changes in equity | 108 | | Notes to the financial statements | 109 | | Directors' declaration | 166 | | Lead auditor's independence declaration | 167 | | Independent auditor's report | 168 | ### RESOURCES AND RESERVES | Information | 173 | | --- | --- | | Competent persons | 174 | | Accompanying tables | 175 | ### INFORMATION | Shareholder information | 181 | | --- | --- | | Urinary of terms and abbreviations | 184 | | Corporate directory | 189 | ![img-0.jpeg](img-0.jpeg) SOUTH32 ANNUAL REPORT 2022 1 ### 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⁾ 5.3 FY22 FY31 5.3 6.0 Underlying EBITDA²⁾ US$4,755m FY22 FY31 US$1,856m US$4,755m Community Investment³⁾ US$31.1m FY22 FY31 US$31.1m US$22.2m Payment of taxes and royalties US$1,447m FY22 FY31 US$569m US$1,447m Operational greenhouse gas (GHG) emissions 21.0 Mt CO₂-e FY22 FY31 21.0 Mt CO₂-e 20.7 Mt CO₂-e Shareholder returns⁴⁾ US$1,320m FY22 FY31 US$1,320m US$470m 1) TRIF based on one adjusted at end FY21 to account for the removal of South Africa Energy Cost (SABC) and Tasmanian Electric Metal Surgical Company (TEMCO) from the portfolio. 2) Community investment consists of direct investment, in kind support and administrative costs. 3) FY22 emissions adjusted to exclude GHG emissions from SABC and TEMCO, which were diverted in FY21. 4) This is a new IP65 measure, for an explanation of how South32 uses new IP65 measures, see page 36. 5) Includes Brazil Alumina, Brazil Aluminum and Sierra Candy. 6) In respect of FY22, includes fully framed shredded cimberm ordinary US$425 million, final ordinary US$600 million and final special US$1.39 million; custom market share buy-back of US$1.38 million. 7) Market capitalisation as at 19 August 2022. Calculated as the number of shares on issue is 628 million, the South32 closing share price AB4.1% and an ASX1.0% exchange rate of 0.4%. 8) In this report we use particular terminology to 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 166 and 167 of this report. ## Highlights 1) 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. 2) Delivered record shareholder returns in respect of FY22 equal to 10 per cent of our market capitalisation¹⁾. 3) Achieved record production at Worsley Alumina, record operating margins at Hillside Aluminum and Mozal Aluminum, exceeded production guidance at Carrington and achieved a 22 per cent increase in nickel production at Cerro Matoso. 4) 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 aluminum capacity²⁾. 5) Completed a pre-feasibility study for the Taylor Deposit and advanced study work for the Clark Deposit at our Hermosa project. 6) Set a new goal of net zero Scope 3 GHG emissions by 2050⁶⁾. SOUTH32 ANNUAL REPORT 2022 3 ### 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 | all of our work is undertaken in a way that | COVID-19 remained a challenge during the | | --- | --- | --- | | saddens me to again report the loss of a | is consistent with our values and Code of | year, but following the global vaccination | | colleague. In November 2021 Mr Desmin | Business Conduct, we have taken learnings | roll out, many of the countries where we | | Mienies, a contractor who was working at | from recent reports into workplace | operate have adapted to living with the | | our Wessels Mine in South Africa, lost his | misconduct and sexual harassment in our | virus. Notwithstanding this shift, our people | | life. On behalf of the Board, I express my | industry. These reports have informed our | have continued to follow controls designed | | deepest sympathies to his family, friends | renewed efforts to identify and respond to | to limit the spread of the virus in every | | and colleagues. The Board has reviewed | the risk factors for harassment, just as we | location where we operate. The Board | | the findings of the investigation following | do for other safety risks. | recognises the dedication of our people | | Mr Mienies’ death and has been briefed | | and appreciates the level of diligence | At the heart of all of our work is the on the steps taken to prevent a similar that continues to be shown. As the world commitment to foster a culture where our incident occurring in the future. started to open up and travel became people feel safe to speak up when they easier, the Board has been pleased to We all recognise that we must continue to are the victim of, or witness, an incident of restart our program of site visits following improve our safety performance. It is a key misconduct, whatever form it takes. The a two-year pause, with visits to Hermosa, focus for the Board, our Lead Team and Board, working with the South32 Lead Worsley Alumina and Sierra Gorda. our entire business. During the first half of Team, sets the direction and tone for our FY22, we partnered with a leading safety workplace culture. We achieved strong realised prices for our commodities this year despite the prevailing global disruption caused by ## “ COVID-19, the tragic conflict in Ukraine, ## We accelerated work to improve our portfolio with and rising global interest rates leading to heightened market volatility. Our ## the completion of several successful transactions. operations performed well throughout the year and delivered Underlying earnings ## This transformational work would not have been before interest, tax, depreciation and ## possible without the strength of our underlying amortisation of US$4.8 billion and free cash flow of US$2.6 billion. The Group’s statutory ## operating performance.” 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. consultant to undertake a review of our We are working to embed inclusion and This included dividends totalling safety performance and identify areas for diversity into everything we do, through US$1.2 billion and US$128 million returned improvement. This formed the foundation the implementation of our Inclusion and to shareholders as part of our ongoing for our Safety Improvement Program, Diversity Action Plan. A critical component capital management program. We further a three-year global program of work of the Action Plan was the development expanded our capital management designed to achieve a step-change in our of our new internal inclusion and program by US$156 million to safety performance. To better support our diversity standard, which sets minimum US$2.3 billion, leaving US$250 million contractors, we have developed and rolled requirements for all elements of people to be returned by September 2023. | out our contractor management standard | management. From FY23, our measurable | | | --- | --- | --- | | which defines performance requirements | objectives will include actions targeted at | Our strong financial performance | | for managing our contractors. | improving inclusion and diversity in our | during FY22 and disciplined approach | | | workplace, in addition to measuring the | to capital allocation have supported | During the year, we continued to give representation of women and Black People investment in our business to improve particular attention to supporting all in our workforce. our portfolio by increasing our exposure our people to feel safe, included and to the metals critical to a low-carbon respected at work. As we strive to ensure 4 OPERATING AND FINANCIAL REVIEW future. Our acquisition of an interest in presents, including producing the metals for all Australians to participate in this act the Sierra Gorda copper mine, increased that support the transition to a low-carbon of reconciliation. shareholdings in Mozal Aluminium and world, in a way that minimises our impact. In FY22, we completed cultural heritage the Mineração Rio do Norte (MRN) bauxite Recognising that we have a critical role to reviews for our operations in the Americas mine, and our decision to participate in the play in contributing to the decarbonisation and southern Africa, following a similar restart of the Alumar aluminium smelter in of the value chain, in partnership with our review of our Australian operations in the Brazil are significant steps for our business. | | customers and suppliers, the Plan includes | previous year. We worked on developing | | --- | --- | --- | | Responding to the imperative to address | a new goal of net zero Scope 3 greenhouse | a more globally consistent approach to | | a changing climate was again a focus | gas emissions by 2050. | cultural heritage management across | | for South32. As we have long made | | operations and regions, building on our | Although we do not have direct operational clear, effectively addressing climate existing cultural heritage management, control over activities in the value chain, we change will require a coordinated effort governance and risk processes by are committed to proactively collaborating across governments, businesses, and leveraging technology platforms and with our suppliers, customers, industry communities, not only to transition to increasing engagement. peers and other value chain partners to a low-carbon world in a just way, but make a meaningful contribution to the Over the past seven years, South32 has also to adapt to the effects of climate actions and innovations required to reduce undergone a major transformation, so change. Delivering on our climate these emissions. much so that the South32 of today - change commitments is fundamental to a global, diversified producer of metals our purpose – to make a difference by Just as we have progressed our work to critical to a low-carbon future - developing natural resources, improving improve our environmental performance, is unrecognisable compared to where people’s lives now and for generations to the same is also true for our social we started in 2015. During FY22 we come, where we are trusted by our owners performance. This year we evolved accelerated work to improve our portfolio and partners to realise the potential of our approach to partnering with our with the completion of several successful their resources. communities to more clearly define transactions. This transformational work how we can contribute societal value Within 12 months of South32 being would not have been possible without through our broader social contribution, established, we committed to supporting the strength of our underlying operating including economic development planning, the objectives of the Paris Agreement and performance, which enabled us to respecting human rights and our approach set a long-term goal to achieve net zero capitalise on record conditions for many of to cultural heritage. operational greenhouse gas emissions by our commodities. 2050. Our first emissions reduction target Many of our operations and projects On behalf of the Board, I would like to thank was to keep our FY21 Scope 1 greenhouse intersect areas of cultural significance our shareholders for their ongoing support gas emissions below our FY15 baseline, and we understand we have a critical and reiterate our thanks to our people for which we achieved. role to play in preserving cultural their hard work and commitment. heritage. We believe it is important for In FY21, we stepped up our ambition by cultural heritage and mining to co-exist setting our medium-term target to halve and we are committed to working with our operational greenhouse gas emissions Indigenous, Traditional and Tribal Peoples, by 2035 from our FY21 baseline. governments and industry. This year we have developed our Climate In Australia we support the Uluru Change Action Plan, which will be the Karen Wood Statement from the Heart as the pathway subject of a non-binding advisory Chair towards reconciliation put forward by resolution at our 2022 Annual General Australia’s First Nations people to enshrine Meeting. The Plan describes the actions the voice of First Nations into the Australian we are taking to address the risks and constitution. We support the opportunity opportunities which climate change SOUTH32 ANNUAL REPORT 2022 5 ### 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 | We are committed to working together | During the year, COVID-19 continued to | | --- | --- | --- | | at South32 is that everyone goes home | safely, and continuously improving how we | affect our people, operations, projects | | safe and well at the end of every shift. | work by embedding safe and sustainable | and offices, and we experienced periods | | Unfortunately, this year we did not | business practices every day. | of elevated case numbers and restrictions | | achieve that. | | across all of our locations. We continue to | Over the past two years we have also monitor employee and contractor infections We are deeply saddened by the loss of undertaken a substantial work program and provide assistance to those affected. one of our colleagues, Mr Desmin Mienies, to improve contractor safety, given the The macroeconomic environment a contractor who was fatally injured important role contractors play in our remained volatile and uncertain throughout while undertaking electrical work at our business. The Contractor Management the year. The continued uncertainty, as a Wessels Mine at South Africa Manganese in System of Work defines the key phases result of geopolitical factors and supply November 2021. of the contractor management value chain disruptions, is expected to see chain and outlines the performance Our deepest sympathies are with Mr Mienies’ inflationary pressures continue across requirements for each phase, including family, friends and colleagues and we our industry. how we support our contractors to provided them with our support following undertake work safely. the tragic incident. We undertook a detailed investigation to understand what happened, and the learnings from the investigation were ## shared across our organisation. “ ## The past 12 months have been some of the most We recognise that we must continue to ## improve our safety performance and we exciting in our history as we transformed are undertaking a significant amount of ## our portfolio to focus on the metals critical work to achieve this. ## to a low-carbon future.” 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 | Just as we strive to create workplaces | Against this backdrop we delivered record | | --- | --- | --- | | program of work designed to achieve a | that are physically safe, we are working | earnings and cashflow in FY22 as our | | step-change in our safety performance. | to create a culture where people feel safe | stable operating performance and recent | | | and supported to speak up if they are | portfolio improvements enabled us to | In FY22 we saw a reduction in recordable experiencing any form of disrespectful capitalise on the significant tailwinds of injuries and our Total Recordable Injury behaviour, harassment or bullying. We commodity prices. Frequency (TRIF) decreased by 12 per cent manage sexual harassment as a material to 5.3 per million hours worked, but we did Our operations delivered to revised plans, safety risk and have identified proactive not meet our 20 per cent reduction target. despite adverse impacts from weather and and reactive control measures at a global labour availability caused by COVID-19. 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. 6 OPERATING AND FINANCIAL REVIEW | Looking ahead, we are well-positioned | A scoping study for Hermosa’s Clark | We continued to progress our | | --- | --- | --- | | to navigate the immediate uncertainty. | Deposit has confirmed the potential for an | decarbonisation initiatives in FY22, | | We have a strong balance sheet with | integrated underground mining operation | including the completion of pre-feasibility | | net cash of US$538 million after funding | producing battery-grade manganese. | studies for the mud-washing efficiency | | US$1.5 billion of investments to improve | Following the decision by the United | project and gas conversion of coal-fired | | our portfolio during the year. We expect | States Government to invoke the Defense | boilers at Worsley Alumina. | | our ongoing focus on cost management | Production Act, supporting the production | | We have commenced the rollout of energy and an expected 14 per cent increase in of critical metals including manganese, efficiency AP3XLE technology at the copper equivalent production in the next we are looking at different options to Hillside Aluminium smelter and completed financial year will mitigate industry-wide potentially accelerate the pre-feasibility studies on the technical feasibility of cost inflation. study for the Clark Deposit. We also deploying renewables to power the continue to invest to advance more than Over the past seven years we have smelter. We continue to work closely with 25 active exploration programs around transformed our portfolio to focus on the South African Government and other the world. increasing our exposure to the metals stakeholders to identify, develop and critical to a low-carbon future. Subsequent to the end of the reporting implement options to procure low-carbon period, we announced that we would electricity to power the smelter. We are This year we acquired a 45 per cent stake not proceed with an investment in the also working with the New South Wales in the Sierra Gorda copper mine in Chile, Dendrobium Next Domain project at Government and CSIRO to construct a providing immediate exposure to copper. Illawarra Metallurgical Coal following our commercial pilot Ventilation Air Methane We are growing our exposure to consideration of recently completed study abatement facility at Illawarra Metallurgical low-carbon aluminium, and during the work and extensive analysis of alternatives Coal. year we increased our shareholding in the considered for the complex. With this hydro-powered Mozal Aluminium smelter In addition, we updated our assessments of decision, we will now focus on continuing in Mozambique, bringing our shareholding the physical risks of climate change across to optimise Dendrobium and the broader to 63.7 per cent. We also achieved first our operated assets. Illawarra Metallurgical Coal complex to production from the restart of the extend the mine life within approved Despite global challenges, the past 100 per cent renewable powered Brazil domains. 12 months have been some of the Aluminium smelter. Through these most exciting in our history and a investments, we expect to double our Our approach to climate change is transformational time for our business. share of low-carbon aluminium production integrated with our strategy and is I’d like to thank our people for their capacity. designed to protect and unlock long-term contribution to our success. It is a result value, build operational resilience, and We reached an important milestone for the of their efforts and resilience that we enhance our competitiveness in a Hermosa project with the completion of a have been able to make great progress to low-carbon world. | pre-feasibility study for the zinc-lead-silver | | become a truly global, diversified producer | | --- | --- | --- | | Taylor Deposit, the first development option | Shareholders will be given the opportunity | of the metals critical to a low-carbon future. | | at the project. We have now commenced | to provide feedback on our approach to | | | a feasibility study ahead of a planned final | climate change when our Climate Change | | | investment decision in mid-CY23. | 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. Graham Kerr Chief Executive Officer SOUTH32 ANNUAL REPORT 2022 7 ### South32 at a glance ## A DIVERSIFIED ## PORTFOLIO WITH ## A BIAS TO BASE ## METALS AMBLER METALS Copper, Lead, Gold, Silver and Zinc Operated interest/share Non-operated interest/share VANCOUVER Development option Exploration program Office FY22 Key Commodity Underlying EBITDA HERMOSA Zinc, Lead, Silver and Manganese (1) ## US$4.9b 12% By Commodity CERRO MATOSO Aluminium value chain Nickel 35% Copper BRAZIL ALUMINA 31% Base and precious metals Bauxite Metallurgical coal 3% Manganese ore 19% BRAZIL ALUMINA Alumina SIERRA GORDA 17% Copper, Molybdenum and Gold By Geography Australia 22% Africa 61% Americas 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 SINGAPORE CANNINGTON Silver, Lead and Zinc AUSTRALIA MANGANESE JOHANNESBURG Manganese ore MOZAL SOUTH AFRICA ALUMINIUM MANGANESE Aluminium Manganese ore PERTH HEAD OFFICE WORSLEY ALUMINA HILLSIDE ALUMINIUM Alumina Aluminium ILLAWARRA METALLURGICAL COAL Metallurgical coal SOUTH32 ANNUAL REPORT 2022 9 ### 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 What we do People Our global workforce is made up of both employees and contractors and is our most Explore Develop 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 Refine/Smelt Mine/Process 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 Rehabilitate/ access to financial capital which we put to Market Close 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 guides us Our purpose Learn more about our purpose on page 18. 10 OPERATING AND FINANCIAL REVIEW ### The outcomes ### we create | Explore | People | | --- | --- | | We have more than 25 active exploration programs across | We provide meaningful employment and career | | the globe to discover our next generation of mines. | development opportunities for the people who | work for us, who in turn support their families and Develop the communities they live in. Our development options have the potential to provide Physical commodities which support the transition to a low-carbon world. We have a pipeline of brownfield and greenfield We produce commodities that are used in all options in execution or study phases. aspects of modern life and play a critical role in the transition to a low-carbon world. Mine Environmental We mine and process bauxite, copper, silver, lead, zinc, nickel, We seek to avoid, minimise, rehabilitate and offset metallurgical coal and manganese. to deliver enduring outcomes for the ecosystems Refine/Smelt and catchments in which we operate. We refine bauxite to produce alumina, we smelt alumina Economic to produce aluminium, and we smelt nickel ore to produce Our disciplined approach to capital management ferronickel. supports investment in our business and rewards Market shareholders as performance improves. Our marketing team generates revenue from the sale of Societal our commodities to a global customer base and purchases The contribution we make to society is raw materials from global markets. They also build a view multi-faceted and helps improve people’s lives by of commodities and their markets to inform our strategic providing the commodities the world needs. In business planning and investment decisions. doing so, we create employment, pay taxes and royalties which help fund essential infrastructure Rehabilitate/Close and services, invest in communities, develop From exploration through to closure and beyond, we supply chains, provide returns to shareholders seek to minimise our adverse impacts on the surrounding and work hard to be responsible stewards of the environments. We undertake progressive rehabilitation environment. where possible and aim to leave a lasting and positive legacy in our host communities. 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. SOUTH32 ANNUAL REPORT 2022 11 ### 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 | Copper | Silver/Lead/Zinc | | --- | --- | --- | | Aluminium is often referred to as the | Copper is a key metal used in electric | Silver is used in solar panels due to its | | metal of the future. It is lightweight, | vehicles and charging infrastructure. It is | superior electrical conductivity, and is | | durable, strong, resistant to corrosion, | an excellent conductor of electricity, so as | also used to make medical appliances | | recyclable and it can conduct electricity, | the world moves towards electrification, | and consumer electronics. Lead is used in | | meaning it has a wide range of applications | copper will increasingly be used in | renewable energy storage systems. Zinc | | including construction, electrical wiring, | power-related infrastructure, including | protects metals against corrosion and | | transportation, packaging and consumer | renewable energy. Copper is also used | will play a key role in green infrastructure | | goods such as electronics and household | in kitchen cookware and plumbing as it | development as a protective coating for | | items. We are increasing our exposure to | conducts heat well and has antimicrobial | wind turbines and solar panels. In solar | | low-carbon aluminium and operate the | properties. In FY22 we acquired an interest | panels zinc oxide coatings help achieve | | largest aluminium smelter in the southern | in our first operating copper mine. | higher energy conversion. | hemisphere. 12 OPERATING AND FINANCIAL REVIEW ## FY22 production at a glance Aluminium (kt) Copper (kt) Silver (koz) Lead (kt) ## 992 25.3 13,199 120.6 Zinc (kt) Nickel (kt) Metallurgical coal (kt) Manganese (kwmt) ## 64.5 41.7 5,712 5,432 Nickel Metallurgical coal Manganese Nickel is used in stainless steel, which is Currently there is no viable alternative Manganese is used to improve the quality used in transportation, manufacturing, to high-quality metallurgical coal in the and strength of steel in major infrastructure household items and surgical instruments. steelmaking process and the use of such as hospitals, office towers and Nickel has an important role to play as the high-quality metallurgical coal, such as bridges, and as the world increases scrap world transitions to a more sustainable that we produce, supports greenhouse steel recycling, this has a limited impact future as it is used as an alloy in wind, solar gas emissions reduction targets in the on manganese as it is largely lost in the and geothermal power infrastructure. steel industry through improved blast recycling process. Manganese also has the Nickel-rich batteries are also critical for the furnace efficiency. Growth in steel demand potential to displace cobalt in lithium-ion rapid adoption of electric vehicles. is anticipated for green infrastructure batteries with significantly higher intensity development and vehicle electrification, as in manganese-rich cathode chemistries. We well as for the establishment of new steel are well positioned to meet future demand capacity in emerging markets. as we are the world’s largest producer of manganese. SOUTH32 ANNUAL REPORT 2022 13 ### 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. Protecting Delivering value and respecting to society our people Operating Managing our Addressing ethically and environmental climate change responsibly impact 14 OPERATING AND FINANCIAL REVIEW ### 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 SOUTH32 ANNUAL REPORT 2022 15 ### 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 Governments | 9,096 | | US$1,447m | | | --- | --- | --- | --- | | | (1) | | (2) | | employees globally | | in total taxes and royalties paid | | | 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 | | Wherever we operate, we seek to work cooperatively | | | apprentices and trainees | | with governments to help them realise value from | | natural resources and transition to lower-carbon We invest in our people through training and economies development to help them realise their career aspirations We work with a range of stakeholders to influence public policy to help improve people’s lives We are embedding inclusion and diversity into everything we do to help everyone realise Learn more about our approach to tax in the Tax Transparency their full potential and Payments to Government Report and our approach to industry associations at www.south32.net 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 ## Communities Investors | US$31.1m | 40% | | --- | --- | | invested in community programs with the aim | Our capital management framework prioritises | | of creating long-term, meaningful change | maintaining safe and reliable operations and an | investment grade credit rating through the cycle, Our direct community investment spend was across our before distributing a minimum of 40 per cent of four key focus areas - education and leadership underlying earnings as ordinary dividends (34 per cent), economic participation (11 per cent), good health and social wellbeing (47 per cent), and natural US$1,192m in dividends returned to shareholders resource resilience (eight per cent) in respect of FY22 We work closely with Indigenous, Traditional and Tribal US$128m allocated to our on-market share buy-back Peoples to perpetuate living cultures 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 50% spent on local procurement We have set a medium-term target to halve our operational greenhouse gas (GHG) emissions (Scope 1 US$19m procured from Aboriginal and Torres Strait and 2) by 2035 and we are committed to achieving net Islander businesses in Australia zero operational GHG emissions by 2050 US$17m spent on Enterprise Supplier Development in We have set a new goal of net zero Scope 3 GHG South Africa emissions by 2050 We work with 5,652 direct suppliers in 50 countries to 276 hectares of land rehabilitated source responsibly and enhance product stewardship across our value chain Water use efficiency improved by 21 per cent year-on-year Learn more about our approach to responsible value chains in our Sustainable Development Learn more about our approach to climate change and Report at www.south32.net our approach to managing our environmental impact in our Sustainable Development Report at www.south32.net SOUTH32 ANNUAL REPORT 2022 17 ### 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 We identify by working safely, minimising and pursue our impact, consistently We unlock the full opportunities delivering stable and value of our business to sustainably predictable performance, through our people, reshape our and continually improving our innovation, projects business for the competitiveness. and technology. future, and create enduring social, environmental and economic value. ## OPTIMISE IDENTIFY ## UNLOCK 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 Trust Togetherness Excellence We care about people, We deliver on our commitments We value difference and We are courageous the communities we’re a part of and rely on each other to do we openly listen and share, and challenge ourselves and the world we depend on. the right thing. knowing that together to be the best in what matters. we are better. 18 OPERATING AND FINANCIAL REVIEW | We deliver on our purpose and our strategy | Risk framework and corporate | Capital allocation since FY16 | | | | --- | --- | --- | --- | --- | | by aligning our workforce behind seven | governance | | | | | ‘breakthroughs’ – commitments which | We are governed by robust risk | | | | | | | | 2% | 7% | | shape our annual business plans across | management and corporate governance | | | | | South32, enabling us to focus on what’s | frameworks. For more information, see | | | | 23% important. pages 26 to 35 for our Risk management section, and our Corporate Governance Building on the momentum created in Statement which can be found at FY21, FY22 was a transformational year for www.south32.net 31% ## our company as we continued to deliver US$14b against our strategy. | | Capital management framework | | allocated | | --- | --- | --- | --- | | The most important commitment we all | Our simple strategy is underpinned | | | | make at South32 is that everyone goes | by a disciplined approach to capital | 16% | | | home safe and well every day. During | management. | | | FY22 we developed a Safety Improvement Our capital management framework Program, a three-year global program of 21% remains unchanged, supporting work designed to achieve a step-change investment in our business and rewarding in our safety performance, and we worked shareholders as our financial performance to improve our approach to contractor Net cash added to balance sheet improves. management. Capital expenditure Our capital allocation priorities are to (including equity accounted investments) An inclusive, diverse and engaged Ordinary dividends maintain safe and reliable operations workforce can unlock the full potential of and an investment grade credit rating Capital management program our people and our business. Throughout throughout the cycle. We intend to Acquisitions FY22 we implemented an Inclusion and distribute a minimum of 40 per cent of Greenfield exploration Diversity Action Plan as part of our journey Underlying earnings as ordinary dividends to instil a culture that aligns with our to our shareholders following each purpose, reflects our values and supports six-month reporting period. We encourage the delivery of our strategy. internal competition for excess capital, Our approach to climate change is which can include further investment in integrated with our strategy and is designed new projects, acquisitions, greenfield to protect and unlock long-term value, build exploration, share buy-backs or special operational resilience, and enhance our dividends. competitiveness in a low-carbon world. We returned a record US$1.3 billion As a global mining and metals company, we to shareholders in respect of FY22 via have an important role to play in responding ordinary dividends, special dividends and to the risks and opportunities of climate our on-market share buy-back. The Board change: to produce the metals that support further expanded our capital management the transition to a low-carbon world; and to program to US$2.3 billion in August 2022, do so in a way that minimises our impact. leaving US$250 million to be returned by We continue to reshape our portfolio, 1 September 2023. 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. SOUTH32 ANNUAL REPORT 2022 19 ### Progress against our strategy ## OPTIMISE OUR BUSINESS ## Working safely Our FY22 commitments: (1) – A 20 per cent reduction in Total Recordable Injury Frequency (TRIF) against the adjusted baseline ; – Completion of the Safety Improvement Program milestones; (2) – A reported significant hazard frequency of 53 ; 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 (2) frequency of 72 . 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 Reported significant in TRIF hazard frequency (2) ## 12% 72 20 OPERATING AND FINANCIAL REVIEW ## OPTIMISE OUR BUSINESS ## Stable and predictable performance while minimising impact 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 (1) – Achieve budget adjusted return on invested capital (ROIC) . 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% SOUTH32 ANNUAL REPORT 2022 21 ### 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 (1) attractive returns over multiple stages . 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 (2) Illawarra Metallurgical Coal complex to extend the mine life within approved domains . 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 SOUTH32 ANNUAL REPORT 2022 23 ### 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: (1) Community investment plans were implemented for each operation and we invested US$31.1 million 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 (2) US$17 million . 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 CO -e, a 1.4 per cent increase from our adjusted FY21 greenhouse 2 (3) gas (GHG) emissions . Direct emissions from activities at our operations (Scope 1) decreased by 0.2 Mt CO -e, however there was 2 an increase of 0.5 Mt CO -e in emissions from electricity used by our operations (Scope 2). More information on our operational GHG 2 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 | Enterprise Supplier | Increase in procurement from | | --- | --- | --- | | investment spend | Development spend | ATSI businesses | | 40% | US$17m | 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 bauste mine in April 2022, taking our ownership to 33 per cent, to further align our bauste 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. ![img-1.jpeg](img-1.jpeg) SOUTH32 ANNUAL REPORT 2022 25 ### 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 Material risks Strategic risks governed by our risk management Our system of risk management is based Our strategic risks are risks which can framework. The minimum mandatory on the three lines model, which describes affect our ability to achieve our strategic requirements for the management of risks how key organisational roles work together objectives. They have the capacity to affect that can materially impact our ability to to facilitate strong risk management and the whole, or a significant part, of our achieve our purpose, strategy and business assurance. This approach is used to manage organisation and therefore tend to have plans are defined in our internal material our material risks and enables us to: significant impacts, both negative and risk management standard. The framework positive. With that in mind, our strategic – Provide stable and consistent and the standard are delivered through risks, associated KRIs and management processes, tools and routines to identify our system of risk management which is responses are monitored and evaluated and regularly assess the most impactful aligned to the principles of the International twice per year. The review process is threats and opportunities; | Standard for Risk Management AS/NZS ISO | | informed by external and internal events | | --- | --- | --- | | 31000:2018. | – Deliver predictable outcomes and | that could have a potential impact on our | | | prevent unforeseen events with material | organisation, as well as emerging themes | Our approach to risk management applies impacts; across our material risks. In FY22, we to all employees, directors and contractors identified 13 strategic risks which could – Understand our risks and manage these of the Company and its subsidiaries. Our influence our plans and the sustainability at all levels of the organisation; and risks are regularly assessed and managed of our business, each of which is explained at both a company-wide strategic level and – Reduce or eliminate risks where further in subsequent pages. at a tactical level for operation, project and appropriate or improve our processes function and risks. using a risk-based approach. Strategic risk key ↑ The inherent risk impact or likelihood Risk appetite The effective management of our material has increased over the past 12 months risks is routinely assessed by the South32 Risk appetite is the level of residual risk that (i.e. without considering internal Lead Team. These risks are reviewed by South32 is willing to take in pursuit of our controls or management responses). the Risk and Audit Committee and the strategic objectives, which is established Sustainability Committee, which assist the in relation to our operating environment. ←→ The inherent risk impact or likelihood Board to carry out its role of overseeing our Our Board approves the risk appetite has remained constant over the past risk management and assurance practices. set by management. Our internal Risk 12 months (i.e. without considering Appetite Statement outlines the extent to internal controls or management We report transparent real-time risk which we are or are not willing to engage responses). data through our risk management tool, with higher levels of risk (both threats and Global360. This software connects data ↓ The inherent risk impact or likelihood opportunities) in order to realise greater relating to the management of our risks, has decreased over the past benefit in the pursuit of our purpose and events, hazards and assurance actions. 12 months (i.e. without considering strategy and in alignment with our values Aside from helping us manage our internal controls or management and Code of Business Conduct. Key risk operations, projects and functions, reliable responses). indicators (KRIs) are set by management data on material risks contributes towards and used to monitor performance against the monitoring and management of our our set risk appetite. Understanding our risk strategic risks. This provides insight into appetite across our strategic risks assists in trends and emerging themes that can decision-making across the Group. trigger a review of our business plans or inform a change in strategic direction. 26 OPERATING AND FINANCIAL REVIEW Keeping our people safe and well Portfolio reshaping A safe and healthy working environment is fundamental to Our objective is to improve our return on invested capital living our values. and create shareholder value by increasing our exposure to high-quality operations in commodities with a strong and Inherent risk trend 2022 sustainable outlook, in jurisdictions where we believe we ## ←→ can operate in line with our values and Code of Business Conduct. Opportunities Keeping our people safe and well underpins the culture we aspire Inherent risk trend 2022 to and sets our expectations of each other. ## ↓ Threats Opportunities The impact of not having a safe working environment can be Increasing our exposure to the metals critical to a low-carbon devastating for our employees, contractors and communities. future will position our business for a low-carbon world, in It can alter lives and impact shareholder returns, stakeholder alignment with our strategy. Acquisitions of operations or confidence and ultimately our licence to operate. development projects, including non-operating and non- Risk appetite controlling shares in these operations and projects, present us Aligned to our purpose and values, we will not take actions with opportunities to increase our exposure to these metals. that compromise the health, safety or wellbeing of our people, The successful acquisition of a non-operating, joint controlled, contractors and communities. 45 per cent share in Sierra Gorda highlights our ability to seek and deliver on these opportunities. Partnering with junior explorers Our response includes: also creates opportunities for us in early-stage exploration in more – In everything we do, we focus on the health, safety and challenging jurisdictions. wellbeing of our people, contractors and communities; Threats – We have a system of risk management and comprehensive Changing global sentiment presents a threat to the sustainability internal health and safety policies, standards and systems with of our current portfolio mix if we do not act to reshape our associated performance requirements designed to prevent and portfolio. In responding to stakeholder expectations, we could mitigate potential exposure to health and safety risks; make decisions to dispose of climate or carbon exposed – We value and strive to build inclusion, diversity and equity in operations, projects and investments at less than market value. our workplace where everyone is valued and can participate Increasing demand for the metals critical to a low-carbon future to achieve their full potential. We do not tolerate any form of may drive higher valuations of operations and projects that we inappropriate conduct which includes bullying, harassment, want to acquire, making acquisitions challenging. Geopolitical discrimination or victimisation; developments may limit those jurisdictions in which we can – We engage, develop and train our people so that our work is operate or those counterparties with which we can partner or well designed and executed; transact. – We investigate actual and potential significant events that Risk appetite could have led to severe injury or higher outcomes, put controls We accept that in actively transforming our portfolio, we need in place and share our learnings across the organisation; to take risk to capture opportunities. We will seek to do so in – We continuously improve our work environment to make it jurisdictions and commodities where we believe we can operate or safer, healthier and more productive for our people; and invest in line with our values and Code of Business Conduct. – We have an independent assurance function, following the Our response includes: three lines model, that reviews our material risks and the – We are actively reshaping our portfolio towards commodities associated controls, to test how effective they are. 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. SOUTH32 ANNUAL REPORT 2022 27 ### 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. Inherent risk trend 2022 Our response includes: – Our approach to managing the transition and physical risks of ## ↑ climate change is outlined in our CCAP; Opportunities – Our sustainability approach, inclusive of our environmental Aligning our business strategy, including how we operate and what performance requirements, is guided by the ICMM Mining we produce, with stakeholder expectations, future technologies Principles, United Nations Global Compact Ten Principles and and evolving climate and environmental policies and regulations, United Nations Sustainable Development Goals and is outlined contributes to a resilient and high performing portfolio. in our Sustainability Policy and Sustainable Development Report at www.south32.net; We aim to increase the efficiency of our operations and support – We seek to manage water resources using a holistic approach business continuity through responsibly assessing and addressing to promote better water use, effective catchment management our climate change and environment-related risks and impacts, and to contribute to improved water security and sanitation; and increasing the resilience of our business, value chain and communities in which we operate. – We establish contextual water targets for operations exposed to water-related material risks; Threats – We are committed to no net loss outcomes for all new projects The complex and pervasive nature of climate change means and major expansions through a balanced application of the that climate-related risks and opportunities are reflected across biodiversity mitigation hierarchy of avoidance, minimisation, our risk profile. The potential impacts of climate change on our rehabilitation and offsetting; strategic risks are outlined on pages 99 to 101 of the CCAP. – We integrate land management and rehabilitation processes Failure to manage environmental risks may impact our ability to into our business planning and give consideration to cumulative secure development approvals, permits or licences and increase impacts when developing management controls to minimise our legal exposures. It may also limit our ability to access capital impacts on surrounding ecosystems; and insurances, develop strategic partnerships with Indigenous, – We engage regularly with investors, governments, industry Traditional and Tribal Peoples or environmental organisations, partners, membership-based sustainability organisations, attract and retain employees, and grow our business in existing ESG proxy advisers and ESG activist groups to identify and and new jurisdictions. monitor emerging environmental and climate change risks, Risk appetite opportunities and trends; and We recognise the impact our mining operations have on the – We are transparent in our disclosure of environment environment due to the extractive nature of our activities and related opportunities and threats in our annual reporting, in that the greenhouse gas emissions associated with our activities accordance with the GRI Sustainability Reporting Standards. 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 Major external events or natural catastrophes Resources and Ore Reserves Our operations and logistics networks can be disrupted by We intend to realise the potential of the resources and events such as pandemics, natural disasters and extreme reserves we are entrusted to develop. We work to weather events that could impact people's wellbeing, continually optimise our operations through sound security, the integrity of tailings facilities and key operating technical and economic understanding of our resources infrastructure. and reserves. Inherent risk trend 2022 Inherent risk trend 2022 ## ←→ ## ↑ Opportunities Opportunities Achieving stable and predictable performance enhances the We continue to enhance our understanding of our resources and value proposition to our shareholders, other stakeholders and reserves. We leverage this enhanced understanding through the communities in which we operate. The better we prepare for the annual planning cycle to define and assess additional and learn from events, the better we are placed to respond and opportunities to add value to our business. aim to reduce the impact of future events – strengthening our organisational resilience. Threats If we fail to continually optimise our operations and projects, it Threats will have a significant impact on shareholder returns, the benefits Failure to manage major events or natural catastrophes could our stakeholders receive and ultimately, the sustainability of the result in a significant event or other long-term damage that could company. harm the company’s access to logistics chains and critical goods and services, financial performance, and licence to operate. The Risk appetite role of climate change in increasing the frequency and severity We are not willing to take risks that inhibit our ability to realise of natural catastrophes is addressed under 'Climate change and the potential of the resources and reserves we are entrusted to environment’ on page 28. develop. Risk appetite Our response includes: We are not willing to take risks that compromise our ability to – We have capital prioritisation, capital allocation and planning manage natural catastrophes. However, we accept we operate processes which prioritise the highest-value options across our in a diverse range of geographic locations, which are exposed to portfolio; natural events and other external events. – We apply an annual planning process that considers the impact Our response includes: of climate change on our Ore Reserves, with plans structured to maximise value throughout the life of our operations; – When facing potential catastrophes, we put safety and wellbeing at the heart of everything we do; – Drill plans and budgets are approved as part of our annual planning cycle and compliance to those plans is reported – We use a system of risk management in design, construction monthly. Where there is material deviation to plan, actions are and operation phases to analyse risks, and design and taken to get us back on track; implement plans that aim to prevent or limit business impacts; – We apply a rigorous project development process that – We utilise climate modelling data to inform our long-term plans includes independent peer review of project risks and approval and project pipelines, and conduct physical risk assessments of tollgates; our assets every two years; – We report Mineral Resources and Ore Reserves (including Coal – We have business continuity and disaster response plans in Resources and Coal Reserves) in accordance with the JORC place with trigger action response scenarios. We have tested Code as required in Chapter 5 of the ASX Listing Rules; and these to make sure we can respond rapidly to major events and safely restore our operations, protecting the health and safety – We have an internal closure standard which requires that of our people and the communities in which we operate; our full-life-of-operations value incorporates closure and rehabilitation liabilities. – 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. SOUTH32 ANNUAL REPORT 2022 29 ### 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. Inherent risk trend 2022 Our response includes: – We have a clearly defined approach to innovation, improvement ## ↑ and technology; Opportunities – We have organised to deliver specific programs focused To stay competitive, we position our organisation to effectively on adoption and improvement of critical technology identify, develop and adopt sustainable business models for capabilities across multiple time horizons including technology and innovation in our operations and projects. cybersecurity, connectivity, underground mine automation and Priority innovation opportunities for South32 are identified decarbonisation; and delivered through Innovate32, our strategy-aligned, – We have a value-based ‘portfolio’ approach to testing and value-focused, innovation portfolio. This approach will assist us scaling up innovation across the company; to deliver on shareholder return expectations and position us for – We have rigorous internal technology standards and processes future business opportunities. (technology ‘ways of working’); Threats – We benchmark our digital technology performance against Failure to keep pace with, and leverage advances in, technology industry best practice and have organised the coordination and and innovation could result in reduced shareholder returns and integration of technology advances into our growth portfolio; impact our licence to operate. – We actively manage cybersecurity and data centre risks through a system of risk management and have increased our Failure to adopt automation, electrification and digital systems cybersecurity controls in response to COVID-19 and an increase could result in deteriorating performance across safety, in remote working; and productivity, returns and carbon emissions. – We monitor internal customer satisfaction and manage Cyber security incidents could pose multiple risks including customer support. 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 Delivery of our project portfolio, both brownfield us from reliably delivering on our strategic objectives. We development options and greenfield projects, forms a build resilience and predictability into our business by critical component of our strategy. Delivery of projects sustaining our ability to keep our people safe and well, safely, on schedule and within budget allows us to optimise meeting our regulatory and social obligations, managing and unlock the value of our business. cost inflation and consistently providing quality products to Inherent risk trend 2022 our customers. ## ←→ Inherent risk trend 2022 Opportunities ## ←→ The safe delivery of our project portfolio on time and within Opportunities budget allows us to improve productivity, extend the life of our We mature our Operating System to control and continuously operations and grow volumes into structurally attractive markets. improve our operations and processes, so that we can deliver Threats stable and predictable performance and unlock the full value of The inability to deliver the project pipeline may impact on our business. We invest in our operations to sustain and improve our future cash flows, reputation, and return on investments. production capacity that generates reliable cash flow to deliver on Challenges to the timely and successful execution of our projects our strategic objectives. can include satisfying conditions for regulatory approval, supply Threats chain constraints, skilled and specialist labour shortages, pricing If we are unable to safely and consistently achieve our production, volatility for commodities, products and services, and legal actions cash flow or profitability targets, it could negatively impact our and activism. ability to deliver on our strategic objectives and negatively impact Risk appetite shareholder returns. Aligned to our strategy of unlocking value in our business, we will Risk appetite not take actions that compromise the planning and execution of We are not willing to take risks that compromise the stable and our major projects. However, we may accept greater levels of risk predictable performance of our operations. to pursue opportunities to extend the life of existing operations through brownfield projects and in executing decarbonisation Our response includes: projects for our assets. – We have embedded, and continuously verify and improve our Our response includes: safety and risk management systems across our business (including our pandemic response); – We maintain a life of operations annual planning process. By evaluating the embedded options in our operations, we are – We have an effective Asset Management system in place at continuously looking to optimise value throughout the life of each operation and review our asset health, asset integrity and our operations; capital investments on a regular basis; – We apply a rigorous governance approach, with our internal – We actively verify, and improve, the effectiveness of our standards providing clear definition of project phases and Operating System by embedding best operating practices tollgate requirements; including operational planning, work design and standards, process control and improvement; – We utilise our internal project management framework, supported by fit-for-purpose processes, procedures and – We actively manage risks to our resource and reserve, mine systems to support project development and execution; and operational planning including reconciliation of Mineral Resources and Ore Reserves to production, plan and spatial – We have dedicated in-house major project management compliance and management of geotechnical risks; capability and use a project delivery model with clearly defined accountabilities for our supporting functions; – We manage an integrated system of long- and short- term planning and scheduling processes that considers – We apply a standardised valuation methodology with environmental, social and governance (ESG) themes and consistent key macroeconomic assumptions; optimises the value from our resources; – We carry out an annual review of commodity prices and – We actively manage product delivery and supply chain risks exchange rates, which we use to inform our operational plans. including effective sales and operational planning processes, This process is supplemented by tri-annual updates; monitoring of raw material supply and management of target – Our internal investment standards define a mature and inventory operating windows; and independent peer review process, which we rigorously follow to – We carry out rigorous quality assurance programs over our inform key investment decisions; and products and operations. – Our joint venture agreements include a mechanism to influence project schedule and cost outcomes (such as Technical Committees and Independent Peer Reviews). SOUTH32 ANNUAL REPORT 2022 31 ### 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 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 Opportunities to potential shortages, critical suppliers and categories, vendor Optimal and sustainable management of supply chain risk liquidity, logistics, climate change and decarbonisation, and positions our business to operate safely and reliably, at the modern slavery. Internal and external data is integrated so we lowest possible cost and in a manner that meets or exceeds have an accurate understanding of existing and emerging risks the expectations of our stakeholders. It also provides us with and can take action to mitigate; the ability to influence how others in our industry approach sustainable sourcing and to position us to benefit as trade flows – We use this understanding of risk to deploy controls to respond to rising protectionism, social consciousness and general support predictable operations. This includes working closely trends to de-risk value chains. with our vendors and operations to better match availability with demand; understanding options for alternative sources Threats of supply and implementing multi-source supply where The disruption of our inbound and outbound supply chains required; optimising inventory levels; flexing commercial terms could materially impact our operations by affecting production, and maintaining up-to-date business continuity plans. We operating costs and our reputation. continually optimise our approach between ‘just in case’ and ‘just in time’ as supply chain risk ebbs and flows; Failure to meet minimum ethical supply chain standards has the potential to damage our social licence to operate (this is further – We build strong strategic partnerships with key suppliers on a addressed under ‘Evolving societal expectations’ on page 34). long-term, mutually beneficial basis; – We have a clearly defined transformation strategy and Climate change has the potential to increase the frequency and enterprise and supplier development programs in South severity of extreme weather events which may threaten our Africa aimed at building and growing small, medium and micro supply chains, particularly logistics and the availability of critical enterprises; goods and services (this is addressed under 'Climate change and environment’ on page 28). – We have Reconciliation Action Plan targets to develop and support Aboriginal and Torres Strait Islander enterprises in Risk appetite Australia; Aligned to our strategy of optimising our business, we are not – We have local procurement initiatives designed to increase willing to take undue risks that compromise the security of our opportunities for local suppliers; supply chain logistics and critical services. However, we accept – We actively review and manage payment terms to support that we have a strong reliance on certain critical suppliers, small and local businesses in all jurisdictions in which we particularly to provide energy, logistics and raw materials to our operate; and operations and we have limited ability to reduce this reliance. – 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 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 Opportunities whether we are making progress towards our preferred culture By fostering an environment that is conducive to our aspired that better balances relationships with performance and culture, we will have even higher levels of employee engagement systems and processes with innovation and empowerment. and teams that are empowered to innovate and drive This process is supplemented by periodic Your Voice employee performance. surveys that measure employee engagement and test whether By having an inclusive and diverse workplace, in every aspect, our culture is enabling the delivery of our strategic objectives; we can improve our ability to attract and retain talent, and better – We have an internal Inclusion and Diversity Policy, standard deliver safety and operational performance, together. and framework which sets out our commitments, strategy, measurable objectives and approach to performance Our flexible work practices and global operating model provides reporting; greater access to talent which can be positioned across the company to better meet business challenges and capture – Our Code of Business Conduct sets out our expected opportunities. standards of conduct, with formal training and assessment routines in place. Anyone can report a business conduct Threats concern, anonymously if preferred, or by using our confidential If we are unable to embed our preferred culture, we will likely and independently administered reporting hotline; have lower levels of engagement, disconnected teams that – We have a leadership model which strengthens alignment to lack diversity and operate in silos, and relationship rather our preferred culture and behaviours, and is integrated across than performance-based decision making. Over time, this our people systems and processes; may constrain innovative thinking and may lead to significant shareholder value erosion and reputational damage. – We have a performance and goals process which supports our reward philosophy, and recognises and rewards aligned A stimulus related recovery in commodity markets has seen leadership behaviours and performance; competition for talent rise and voluntary turnover rates increase, – We design our reward elements to position ourselves relative while COVID-19 has restricted travel and limited face-to-face to the market, enabling us to attract appropriate skills and interaction between our key leaders and geographically dispersed experience, engage employees and improve performance; talent pool. – We routinely review our key talent and critical role successors Risk appetite globally, creating individualised plans to further their People underpin everything we do and we are not willing to development and address talent pipeline risks as appropriate. take risks that could negatively impact our culture and the way This includes targeted retention programs for key talent and/or our people connect to our purpose. However, we recognise our team members occupying critical roles; size and the competitive labour market in which we operate – We support employees who undertake further education and and therefore must be willing to take risk to build our talent and training related to their current or future career with South32; succession pipeline. – 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. SOUTH32 ANNUAL REPORT 2022 33 ### 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 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 Opportunities impact, respect human rights and create enduring social, Proactive, collaborative and transparent engagement with our environmental and economic value for all our stakeholders; stakeholders builds relationships based on trust and shared understanding. Our ongoing licence to operate is built on our – We undertake internal and external stakeholder analysis and contribution to our stakeholders and broader society. engagement on a wide range of financial and ESG issues, including an annual materiality process to understand our Threats material ESG issues. Our approach is aligned with the ICMM Failure to meet evolving societal expectations for ESG Mining Principles, The United Nations Global Compact performance could damage our reputation and negatively impact (UNGC) Ten Principles and Global Reporting Initiative (GRI) our licence to operate, limiting our ability to access capital, retain Sustainability Reporting Standards; and attract employees and grow our business in existing and new – We work to build strong, positive and meaningful relationships jurisdictions. with local communities. We regularly complete and review Risk appetite community perception surveys, human rights impact assessments, social baseline studies and social impact and We are not willing to take risks that will result in a failure to meet opportunity assessments to improve our understanding of the societal expectations, in human rights, cultural heritage, modern communities in which we operate; slavery and community safety. However, we accept that we will be required to take some risks in areas such as impacts of mining – We review and amend our community investment program (e.g. on the environment) and commodity selection that may not annually to align with community and stakeholder priorities. completely align with societal expectations. 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 We prioritise an investment grade credit rating and a activity have the potential to impact our strategic objectives disciplined approach to allocating capital which aims to and the way we work. This includes broader policy decisions keeps our balance sheet strong, providing us with financial and regulatory changes, related but not limited to, changes flexibility regardless of market conditions. By creating to royalty and taxation policy, nationalisation of mineral competition for capital and investing selectively in our resources, supply chains, renegotiation or nullification of existing operations, growth options and external contracts, leases, permits or agreements, and environmental opportunities, or by making returns to shareholders, we aim and social performance requirements. to maximise total shareholder returns over time. We aim to effectively manage this uncertainty through Inherent risk trend 2022 engagement with key stakeholders and industry associations, ## monitoring of political activity, policy, legislative and regulatory ↑ changes, and by having access to specialised knowledge. Opportunities Inherent risk trend 2022 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. Opportunities Threats Proactive engagement leading to strong relationships with A significant or sharp deterioration in economic conditions can governments and authorities provides a mutual understanding of adversely impact market demand, commodity prices, and/or drivers for decision-making. This increases clarity around policy exchange rates which has the potential to significantly reduce and regulatory environments, enables appropriate and tailored profitability, cash flow and returns to shareholders. An increase responses to issues and provides investment certainty. in volatility, especially when it has an impact on in-bound and out-bound supply chains, has the potential to increase working Threats capital requirements, affecting our liquidity. A reduction in liquidity Legislation adverse to our business and regulatory or policy available in capital markets has the potential to impact our decisions taken by governments or authorities, particularly balance sheet and ability to pursue our strategy. relating to societal expectations, can result in operational disruption, permitting uncertainty, affect future planning or lead Risk appetite to cessation of operations or non-investment in operations or We are not willing to take risks that may limit our ability to projects. maintain a minimum liquidity balance and/or access to funding on acceptable terms. We recognise that our preferred commodity Risk appetite basket and our operating costs have the potential for price and We have a low appetite for activities that are likely to result in exchange rate volatility outside of our control, and while we accept non-compliance with applicable legal or regulatory requirements. that as a resource company we are exposed to this inherent risk, We maintain programs that seek to comply with those we will act to reduce its impact by understanding its effect on our requirements. However, there can be no guarantee that such business. programs will always be effective to identify or prevent breaches of the law. Further, we operate in certain complex environments Our response includes: and jurisdictions, which are subject to legislative, regulatory – We have a diverse portfolio of operations, commodities and or government policy changes that may adversely impact our end markets which strengthens our resilience to the disruption business. Therefore, there will always be residual risk in relation to of any one commodity, geography or operation; compliance with legal and regulatory requirements and changes – We prioritise a strong balance sheet and an investment grade to those requirements that may adversely impact our business. credit rating, with the aim of remaining resilient through Our response includes: economic cycles; – We have specialised knowledge through in-house expertise – We test our financial strength across a range of scenarios, or the use of external experts, including tax management including a depressed demand and pricing environment. capability, tax advice and external affairs advice; We also maintain a minimum liquidity buffer and access to a diverse range of funding sources; – We monitor political activity, policy, and legislative and regulatory changes in the jurisdictions where we operate, and we also – We adjust our capital allocation plans according to market engage with relevant authorities, to understand and mitigate conditions; potential impacts on our business performance; – 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 mostly sell our products with reference to floating, – We work through selected industry associations to influence market-based prices, which are broadly correlated with floating how the industry is positioned; and global currency markets and the input costs we are exposed to; and – We produce an annual Tax Transparency and Payments to Governments Report, which shows how we meet our regulatory – We carry out an annual review of commodity prices and tax obligations. exchange rates, which we use to inform our operational plans. This process is supplemented by tri-annual updates. SOUTH32 ANNUAL REPORT 2022 35 ### 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. The Group uses both International Financial In discussing the operating results of the In order to calculate Underlying EBITDA, Reporting Standards (IFRS) and non-IFRS Group, the focus is on Underlying earnings Underlying EBIT and Underlying earnings, financial measures such as underlying and ROIC. Underlying earnings is the key the following items are adjusted as measures of earnings, effective tax rate measure that is used by the Group to applicable each period, irrespective of (ETR), return on invested capital (ROIC), assess its performance, make decisions materiality: cash flow and net cash, to assess the on the allocation of resources and assess – Exchange rate (gains)/losses on Group’s performance. The Directors senior management’s performance. restatement of monetary items; believe that the non-IFRS measures are In addition, the performance of each of important when assessing the underlying – Impairment losses/(reversals); the Group’s operations and operational financial and operating performance of the – (Gains)/losses on disposal and management is assessed based on Group and its operations. The meanings of consolidation of interests in operations; Underlying EBIT. Management uses this individual non-IFRS measures used in this measure because financing structures – (Gains)/losses on non-trading derivative report are set out in the Glossary on page and tax regimes differ across the Group’s instruments, contingent consideration 184. | | operations and substantial components | and other investments measured at fair | | --- | --- | --- | | The basis of the Group’s underlying | of tax and interest charges are levied at | value through profit or loss; | | financial results is included on page 112 in | a Group level rather than an operational | – Major corporate restructures; | | note 4 to the financial statements, which | level. | | – Joint venture adjustments for material has been updated from FY22 to reflect equity accounted investments; the Group’s interest in material equity – Exchange rate variations on net debt; accounted joint ventures on a proportional consolidation basis. FY21 comparative – Tax effect of earnings adjustments; and information has been updated to reflect – Exchange rate variations on tax this change. We believe that Underlying balances. earnings before interest, tax, depreciation | and amortisation (EBITDA), Underlying | In addition, items that do not reflect the | | --- | --- | | earnings before interest and tax (EBIT) | underlying operations of South32, and are | | and Underlying earnings provide useful | individually, or in combination with other | | information, but should not be considered | related earnings adjustments, significant | | as an indication of, or an alternative to, | to the financial statements, are excluded to | | profit/(loss) after tax as an indicator of | determine Underlying earnings. | 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 (1)(2) Financial highlights US$M FY22 FY21 Change Revenue 9,269 5,476 69% (3) Profit/(loss) before tax and net finance costs 3,724 (94) N/A Profit/(loss) after tax and net finance costs 2,669 (195) N/A (4) Basic earnings per share (US cents) 57.4 (4.1) N/A (5) Ordinary dividends per share (US cents) 22.7 4.9 363% (5) Special dividends per share (US cents) 3.0 2.0 50% (3) Other financial measures (6) Underlying revenue 10,630 7,323 45% Underlying EBITDA 4,755 1,856 156% Underlying EBITDA margin 47.1% 26.4% 20.7% Underlying EBIT 3,967 1,039 282% Underlying EBIT margin 39.4% 14.8% 24.6% Underlying earnings 2,602 489 432% (4) Basic Underlying earnings per share (US cents) 56.0 10.3 444% ROIC 30.1% 6.2% 23.9% Ordinary shares on issue (million) 4,628 4,675 (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$139 million) divided by the number of shares on issue at 30 June 2022 (4,628 million). (6) Underlying revenue includes revenue from third party products and services. | External factors and trends | Commodity prices and changes in | Estimated impact on Underlying EBIT of a | | | | | --- | --- | --- | --- | --- | --- | | affecting the Group’s result | product demand and supply | +/- 10% change in commodity price | | | | | The following describes the main external | South32 produces metals, concentrates | US$M FY22 | | | | | factors and trends that have had a | and ores, for which prices are driven by | | (1) | | | | | | Aluminium | | | 316 | | material impact on the Group’s financial | global demand and supply for each of | | | (2) | | | | | Metallurgical coal | | | 220 | | position and results of operations during | these commodities. Commodity prices | | | | | Alumina 212 the financial year. Details of the Group’s were generally higher in FY22 compared Manganese ore 104 most significant risk factors and how to FY21 as most physical markets Nickel 81 they are mitigated can be found in Risk strengthened on the back of global (3) Copper 25 management on pages 26 to 35 of the economic recovery following the easing Silver 26 Annual Report. of COVID-19 restrictions and supply constraints. The prices that the Group Lead 24 Management monitors particular trends obtains for its products are a key driver of Zinc 21 arising from external factors with a view business performance, and fluctuations in (1) Aluminium sensitivity shown without any associated to managing the potential impact on the increase in alumina pricing. these markets affect our results, including Group’s future financial position and results (2) Includes metallurgical and energy coal at Illawarra cash flows and shareholder returns. Metallurgical Coal. of operations. (3) Includes molybdenum, gold, and silver at Sierra Gorda. SOUTH32 ANNUAL REPORT 2022 37 ### 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 Average Value Closing Value Year ended 30 June FY22 FY21 Change FY22 FY21 Change (1) Alumina (US$/t) 382 283 35% 367 286 28% (2) Aluminium (LME Cash) (US$/t) 2,889 2,023 43% 2,397 2,523 (5%) (2) Copper (LME Cash) (US$/t) 9,651 7,962 21% 8,245 9,352 (12%) (3) Silver (US$/toz) 23.6 25.4 (7%) 20.4 25.8 (21%) (2) Lead (LME Cash) (US$/t) 2,304 1,978 16% 1,907 2,320 (18%) (2) Zinc (LME Cash) (US$/t) 3,509 2,653 32% 3,252 2,946 10% (2) Nickel (LME Cash) (US$/t) 23,547 16,241 45% 23,100 18,450 25% (4) Metallurgical coal (US$/t) 390 122 220% 302 194 56% (5) Manganese ore (US$/dmtu) 6.16 4.63 33% 7.27 5.15 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 | Lead: The FY22 average LME cash | Exchange rates | | --- | --- | --- | | trends of our most significant commodities | settlement price was 16 per cent higher | Global risk sentiment, central bank | | for FY22. The price change reflects the | than FY21 despite underperformance of | monetary policy and commodity prices | | average of FY22 over FY21. | global automotive sales in FY22. | continue to be key drivers of currency | markets. In FY22, producer currencies Alumina: The average FOB Australia price Zinc: The FY22 average LME cash generally weakened against the US for the year was 35 per cent higher than settlement price was 32 per cent higher dollar, reversing gains from the previous FY21 driven by supply disruptions due than FY21. Smelter disruptions, coupled financial year, as the US Federal Reserve to the Russia-Ukraine war. However, the with elevated energy prices stemming accelerated interest rate increases to price increase was moderated in the last from the Russia-Ukraine war, continued to mitigate inflationary pressures. This was quarter as new alumina supply came online provide price support. intensified in the last quarter of FY22 when in China. | | Nickel: The FY22 average LME cash | commodity prices declined, and the US | | --- | --- | --- | | Aluminium: The average LME cash | settlement price was 45 per cent higher | dollar gained strength as a safe haven | | settlement price for the year was | than FY21, driven by strong demand, low | amidst growing concerns on economic | | 43 per cent higher than FY21. The price | inventories, Russian supply concerns and | growth. | | increase was driven by improving global | elevated derivatives trading activity. Prices | | The Group is exposed to exchange rate risk demand and the rising cost of aluminium eased in the last quarter of FY22 due to on foreign currency sales, purchases and production stemming from the tightening demand concerns globally. expenses, as no active currency hedging energy complex. Towards the end of Metallurgical coal: The FY22 average is undertaken. As the majority of sales are FY22, price momentum was moderated Platts Premium Low-Vol Hard Coking Coal denominated in US dollars, and the US by China’s COVID-19 lockdowns and an price was 220 per cent higher than FY21. dollar plays a dominant role in the Group’s acceleration in US interest rate increases. | | The higher prices reflected a recovery in | business, funds borrowed and held in US | | --- | --- | --- | | Copper: The FY22 average LME cash | ex-China pig iron output in the first half | dollars provide a natural hedge to currency | | settlement price was 21 per cent higher | of the year leading to increased demand, | fluctuations. Operating costs and costs of | | than FY21. Prices were supported by | while supply from major seaborne | locally-sourced equipment are influenced | | lower than expected mine supply in Chile | exporting regions remained constrained | by fluctuations in local currencies, primarily | | and expectations of strong long-term | by weather induced disruptions and the | the Australian dollar, Brazilian real, | | demand. Prices fell in the last quarter as | impact of COVID-19 on operations. | Colombian peso, Chilean peso and South | | US interest rate increases accelerated and | | African rand. | Manganese ore: The average Manganese concerns around macroeconomic risks and Ore Metal Bulletin 44 per cent Mn CIF China The Group is also exposed to exchange expectations of new supply growth over price was 33 per cent higher than FY21. rate translation risk in relation to net the next few years increased. | | Global demand recovery and tightness of | monetary liabilities, being foreign currency | | --- | --- | --- | | Silver: The FY22 average LBMA silver | high-grade seaborne ore supplies due to | denominated monetary assets and | | price was seven per cent lower than | weather and logistical disruptions provided | liabilities, including debt, tax and other | | FY21. The price fall was underpinned by | support to prices. | long-term liabilities. Details of the exposure | | the accelerated pace of US interest rate | | to foreign currency fluctuations are set out | | increases, designed to mitigate inflation, | | in note 19 to the financial statements on | | tempering investment appetite for silver. | | 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 FY22 Australian dollar 201 South African rand 109 Colombian peso 30 Brazilian real 15 Chilean peso 4 The following table shows the average and period end closing exchange rates of the most significant currencies that affect the Group’s results: (1) Exchange rates Average Value Closing Value Year ended 30 June FY22 FY21 Change FY22 FY21 Change (2) Australian dollar 0.73 0.75 (3%) 0.69 0.75 (8%) (3) South African rand 15.22 15.42 1% 16.26 14.33 (13%) (3) Colombian peso 3,903 3,660 (7%) 4,127 3,757 (10%) (3) Brazilian real 5.24 5.39 3% 5.24 5.00 (5%) (3) Chilean peso 812 746 (9%) 924 727 (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 th 26 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. SOUTH32 ANNUAL REPORT 2022 39 ### Financial and operational performance summary continued ### 2022 Financial year summary Specific highlights for FY22 included: In FY22, we made substantial progress reshaping our portfolio towards metals – Group copper equivalent production critical for a low-carbon future by: was 99 per cent of guidance, as the Performance summary | | majority of operations delivered to | – Adding copper exposure through the | | --- | --- | --- | | The Group’s statutory profit after tax | revised plans, despite adverse impacts | acquisition of a 45 per cent interest in | | increased by US$2,864 million to a record | from weather and labour availability | the Sierra Gorda copper mine; | | US$2,669 million in FY22. We achieved | caused by the COVID-19 pandemic; | | – Increasing our low-carbon aluminium this record result as our stable operating – Worsley Alumina continued to operate production capacity by more than performance and portfolio changes that above nameplate capacity, achieving 100 per cent, acquiring an additional increased our exposure to higher margin record annual production; 16.6 per cent shareholding in Mozal businesses enabled us to capitalise on the Aluminium and participating in the – Hillside Aluminium and Mozal Aluminium significant tailwind of commodity prices, restart of the Brazil Aluminium smelter; continued to test their maximum offsetting the impact of adverse weather technical capacity, despite the impact – Acquiring an additional and ongoing COVID-19 related labour of higher load-shedding, capitalising 18.2 per cent interest in the Mineração restrictions at a number of operations. on strong aluminium prices to deliver Rio do Norte (MRN) bauxite mine, Underlying earnings increased by record operating margins; taking our ownership to 33 per cent, US$2,113 million to a record and further aligning our bauxite supply US$2,602 million in FY22. – Cannington transitioned to 100 per cent requirements within our Brazilian truck haulage, while also beating our Underlying revenue increased by aluminium value chain; already increased production guidance; 45 per cent to US$10,630 million as we and – Completing a pre-feasibility study for implemented innovative logistics solutions the zinc-lead-silver Taylor Deposit, – Cerro Matoso achieved a 22 per cent to mitigate challenging freight and third- confirming its potential to be the first increase in payable nickel production, party port performance to deliver volumes development at our Hermosa project; benefitting from improved plant into favourable markets, capturing the availability following the prior period’s – Advancing study work on our battery- benefit of higher prices. This translated to furnace refurbishment and higher- grade manganese Clark Deposit at our a record operating margin of 47 per cent grades from our investment in the Hermosa project; and (FY21: 26 per cent), as we held increases in Queresas and Porvenir project. controllable costs to less than two per cent – Continuing our investment in greenfield of the Group’s total cost base for the year. exploration to discover our next We returned US$1,320 million to Underlying EBITDA increased by generation of base metals mines, our shareholders in respect of FY22 US$2,899 million to a record spending US$26 million across the comprising: US$4,755 million and Underlying Americas, Australia and Europe. EBIT increased by US$2,928 million to – US$1,053 million fully-franked ordinary We are well positioned heading into FY23, a record US$3,967 million as the Group dividends, which includes the given our growing production profile and delivered a 30.1 per cent return on invested US$648 million fully-franked final strong balance sheet, and will continue to capital. ordinary dividend in respect of H2 FY22; pursue cost efficiencies to provide partial and We generated record free cash flow from relief from industry-wide inflationary – US$267 million as part of our ongoing operations of US$2,561 million, including pressures. capital management program, with distributions from our manganese US$128 million allocated to our on- Earnings and Sierra Gorda equity accounted market share buy-back (46 million investments. Our strong financial The Group’s statutory profit after tax shares at an average price of performance supported our continued increased by US$2,864 million from a loss A$3.89 per share), and a US$139 million investment in our business and portfolio of US$195 million to a record fully franked special dividend in respect changes, that have increased our exposure US$2,669 million in FY22. of H2 FY22. to metals critical for a low-carbon Consistent with our accounting policies, future, while delivering record returns to From day one we have established a various items are excluded from the shareholders. We finished the period with successful track record for disciplined Group’s statutory profit/(loss) to derive net cash of US$538 million having executed capital allocation and returning excess Underlying earnings. The total adjustments our inaugural US dollar bond during the cash to shareholders in both a timely to derive Underlying EBIT (US$243 million) period, issuing US$700 million in Senior and efficient manner, buying back include the recognition of indirect tax Unsecured Notes (Notes) to support the 13 per cent of our shares on issue since assets following the restart of the Brazil funding of our Sierra Gorda acquisition. commencing our capital management Aluminium smelter (US$77 million pre-tax) program at an average price of and a net impairment loss of non-financial A$2.93 per share. Reflecting our strong assets (US$145 million pre-tax) primarily financial position and disciplined approach related to our Eagle Downs Metallurgical to capital management, the Board further Coal development option (US$183 million expanded our capital management pre-tax), partially offset by an impairment program by US$156 million to reversal for Brazil Aluminium (US$42 million US$2.3 billion, leaving US$250 million pre-tax). Further information on these to be returned by 1 September 2023. earnings adjustments is included on page 118. 40 OPERATING AND FINANCIAL REVIEW The Group’s Underlying EBITDA increased US$M FY22 FY21 In addition, capital expenditure associated by US$2,899 million (or 156 per cent) to a with our share of our manganese and Safe and reliable capital record US$4,755 million as we benefitted Sierra Gorda equity accounted investments expenditure (367) (325) from the significant tailwind of commodity was US$164 million with the inclusion Improvement and life | prices (US$3,666 million) and we limited | extension capital | of Sierra Gorda (US$81 million) and our | | --- | --- | --- | | increases in our controllable costs | expenditure (58) (63) | ongoing investment in further tailings | | (US$114 million or two per cent of our total | Growth capital | storage capacity at Australia Manganese. | | cost base). Uncontrollable costs increased | expenditure (97) (72) | Our spend at Sierra Gorda, following our | | by US$839 million with significantly higher | Intangibles and the | acquisition of the 45 per cent interest in | | price-linked royalties and industry-wide | capitalisation of | February 2022, was primarily directed | | inflation, most notably in raw material | exploration expenditure (37) (30) | towards deferred stripping activity and the | | prices and distribution costs. Portfolio | Divested operation – | continued execution of the plant’s | | changes, including the divestment of lower | South Africa Energy Coal – (76) | de-bottlenecking project. | | returning businesses South Africa Energy | Total capital | | Net finance costs Coal and Tasmanian Electro Metallurgical expenditure (excluding equity accounted The Group’s FY22 Underlying net finance Company (TEMCO), combined with the investments) (559) (566) costs of US$155 million comprise the acquisition of our 45 per cent interest in the Equity accounted unwinding of the discount applied to our Sierra Gorda copper mine and additional investment capital closure and rehabilitation provisions shareholding in Mozal Aluminium had a expenditure (164) (70) (US$83 million), interest on lease liabilities positive US$211 million impact on the Equity accounted (US$54 million) primarily at Worsley result. investment divested Alumina, interest and transaction costs The Group also achieved record Underlying operation – TEMCO – (1) associated with the Notes issue and EBIT of US$3,967 million in FY22, increasing Total capital refinancing of our revolving credit facility by US$2,928 million (or 282 per cent) on the expenditure (including (US$14 million) and our share of net finance equity accounted prior year as Underlying depreciation and costs for the Sierra Gorda joint venture investments) (723) (637) | amortisation reduced by US$29 million to | | (US$6 million). | | --- | --- | --- | | US$788 million following the prior period | Total capital expenditure, excluding equity | | | impairment at Illawarra Metallurgical Coal. | | Tax expense | accounted investments, decreased by US$7 million in FY22 to US$559 million, The Group’s FY22 Underlying income tax Operating costs following the divestment of South Africa expense increased by US$830 million to FY22 and FY21 comparative underlying US$1,210 million for an Underlying ETR of Energy Coal (FY21: US$76 million) in June operating costs are set out below, 31.7 per cent. Our FY22 Underlying ETR 2021: excluding earnings adjustment items has reduced significantly from the prior impacting operating costs. Earnings – Safe and reliable capital expenditure period’s elevated rate (FY21: 43.3 per cent), adjustment items are detailed on page 118 increased by US$42 million (or following the derecognition of tax assets in note 4(b)(i) to the financial statements. 13 per cent) in FY22 to US$367 million associated with the divestment of South as we invested in longwall equipment Africa Energy Coal in the prior period. | US$M FY22 FY21 | and ventilation infrastructure at | | | --- | --- | --- | | Operating cash costs 5,411 5,255 | Illawarra Metallurgical Coal, and bauxite | Our FY22 Underlying ETR reflects the | | Third party commodity | residue disposal capacity at our alumina | corporate tax rates of the jurisdictions in | | purchases 570 392 | refineries; | which we operate, as well as the inclusion of | | Depreciation and | | the manganese business and Sierra Gorda | – Improvement and life extension amortisation expense 788 817 in Underlying earnings on a proportional capital expenditure decreased by Total operating costs consolidation basis (including royalty US$5 million (or eight per cent) in FY22 included in Underlying related taxes for Australia Manganese and to US$58 million as our investment in EBIT 6,769 6,464 Sierra Gorda). The Underlying ETR for our aluminium smelter efficiency projects manganese business was 45.8 per cent in Capital expenditure and the Ore Sorting and Mechanical FY22, including the royalty related tax and We allocate capital in line with our strategy Ore Concentration (OSMOC) project at the derecognition of certain deferred tax and capital management framework to Cerro Matoso, was more than offset by assets. optimise our business, unlock the full value reduced activity on the Dendrobium of operations and identify and pursue Next Domain project at Illawarra Cash flow opportunities to create value. In FY22 the Metallurgical Coal; The Group generated record free cash flow Group continued to prioritise capital for – Growth capital expenditure increased from operations of US$2,240 million and the safety and reliability of our operations, by US$25 million (or 35 per cent) in received US$321 million in net distributions to progress life extension and innovation FY22 to US$97 million as we invested from our manganese and Sierra Gorda and improvement projects, and to fund our in the construction of infrastructure to equity accounted investments in FY22. current and future greenfield growth to support orebody dewatering for the Our record result benefited from the sustainably grow ROIC. Taylor Deposit at our Hermosa project; implementation of innovative logistic | and | solutions across multiple operations | | --- | --- | | – Our spend on intangibles and | to mitigate the impact of ongoing port | | capitalised exploration increased by | congestion, which contributed to our | | US$7 million (or 23 per cent) in FY22 to | strong sales performance during FY22. | | US$37 million as we stepped-up our | Record profitability also gave rise to | | exploration activity at Hermosa and | a significant increase in income tax | | Ambler Metals. | 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. SOUTH32 ANNUAL REPORT 2022 41 ### Financial and operational performance summary continued Free cash flow from operations, excluding equity accounted The working capital build of US$428 million was mainly attributable investments to: US$M FY22 FY21 – Trade and other receivables increasing by US$300 million as we realised higher commodity prices, and delivered a strong sales Profit/(loss) from continuing and discontinued operations 3,724 (94) result in FY22, temporarily increasing our receivables balance at the end of the period. Our debtor days improved year-on- Non-cash items 694 1,419 year to 21 days (FY21: 24 days); (Profit)/loss from equity accounted investments (272) (133) – Inventory increasing by US$206 million, mostly due to higher | (Profit)/loss from sale of operations – 159 | raw material input prices; and | | --- | --- | | Change in working capital (428) 61 | – Provisions reducing by US$82 million from a weaker Australian | | Cash generated 3,718 1,412 | dollar and South African rand, | Total capital expenditure, excluding equity which was offset by Trade and other payables increasing by accounted investments, including intangibles and capitalised exploration (559) (566) US$160 million, due to the timing of raw material purchases and Operating cash flows before financing the impact of higher price-linked royalties. activities and tax, and after capital Working capital movement reconciliation expenditure 3,159 846 | | | (1) | | US$M FY22 FY21 | | --- | --- | --- | --- | --- | | Interest (paid)/received | | | (51) (44) | | | Income tax (paid)/received (868) (163) | | | | Trade and other receivables (300) (156) | | Free cash flow from operations 2,240 639 | | | | Inventories (206) (142) | | (1) FY22 net distributions from our material equity accounted joint ventures comprises | | | | Trade and other payables 160 264 | | | dividends and capital returns (US$224 million) and a net repayment of shareholder | | | Provisions and other liabilities (82) 95 | 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 Working capital movement (428) 61 repayments and US$47 million of accrued interest. Earnings analysis The following key factors influenced Underlying EBIT in FY22, relative to FY21. (1)(2)(3) Reconciliation of movements in Underlying EBIT (US$M) Uncontrollable Net finance costs and tax 3,666 (728) 56 (167) 211 35 (155) (31) (114) (1,210) 3,967 2,602 1,039 Other Inflation Sales price Sales volume | 5,000 | | Price-linked costs | | | Portfolio changes | | | --- | --- | --- | --- | --- | --- | --- | | | | | Foreign exchange | Controllable costs | | | | | FY21 Underlying EBIT | | | | | FY22 Underlying EBIT | 4,000 FY22 Underlying earnings 3,000 Underlying net finance costs 2,000 1,000 (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 Underlying income tax expense | Average analysis | US$ | Commentary | | --- | --- | --- | | FY21 Underlying EBIT | 1,039 | | | Change in sales price | 3,666 | Higher average realised prices for our commodities, including: Metallurgical coal (+US$1.545 million) Aluminium (+US$1.027 million) Alumina (+US$186 million) Nickel (+US$313 million) Manganese ore (+US$279 million) Energy coal (+US$88 million) Zinc (+US$59 million) Lead (+US$23 million) Partially offset by a lower average realised price for silver (-US$54 million) | | Net impact of price-linked costs | (728) | Higher freight and distribution costs (-US$135 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$39 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 | 56 | Weaker Australian dollar (+US$56 million), weaker Colombian peso (+US$18 million) and stronger South African r्जrd (-US$11 million) | | Change in inflation | (167) | Inflation-linked indexation of our aluminium smelter electricity prices (-US$40 million) General inflation across Australia, southern Africa and South America (-US$127 million) | | Change in sales volume | (31) | 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 Iriradio 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 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 | | Portfolio changes | 211 | Improved profitability, following the disposal of lower returning businesses South Africa Energy Coal and TEMCO, the acquisitions of our Sierra Gerda interest and additional shareholding in Motal Aluminium, partially offset by smelter restart costs at Brazil Aluminium | | Other | 35 | Lower depreciation and amortisation at Illawarra Metallurgical Coal and the recognition of historical tax credits at Brazil Alumina | | FY22 Underlying EBIT | 3,967 | | Further analysis of operations performance is outlined on pages 46 to 56. SOUTH52 ANNUAL REPORT 2022 43 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 | FY22 | FY21 | | --- | --- | --- | | Cash and cash equivalents | **2,365** | 1,611 | | Current external debt | **(602)** | (608) | | Non-current external debt | **(1,425)** | (799) | | Net cash | **538** | 406 | | Net assets | **10,779** | 8,954 | As at 30 June 2022, the Group's balance sheet was modestly geared with a leverage ratio of 9.2. # **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 Gerda 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 | Available FY22 | Used FY22 | | --- | --- | --- | | Revolving credit facility^{(1)} | **1,400** | | (1) The Group has an undrawn multi-currency revolving syndicated credit facility which is a standby arrangement to the US commercial paper program. This facility was refinanced in December 2002 for a five year term to 2006 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 | Underlying Revenue | | Underlying EBIT | | | --- | --- | --- | --- | --- | | | FY22 | FY31 | FY22 | FY31 | | Worsley Alumina | 1,635 | 1,173 | 386 | 143 | | Brazil Alumina | 524 | 400 | 89 | 66 | | Brazil Aluminium | - | - | (44) | (3) | | Hillside Aluminium | 2,254 | 1,511 | 666 | 293 | | Mozai Aluminium | 924 | 578 | 271 | 98 | | Sierra Gorda | 241 | - | 75 | - | | Cannington | 736 | 757 | 315 | 350 | | Hermosa | - | - | (14) | (8) | | Cerro Matoso | 929 | 493 | 463 | 122 | | Illawarra Metallurgical Coal | 2,338 | 758 | 1,388 | (103) | | Australia Manganese | 848 | 730 | 402 | 304 | | South Africa Manganese | 419 | 337 | 58 | 48 | | Third party products and services(2) | 600 | 298 | 20 | 10 | | Inter-segment / Group and unallocated | (808) | (573) | (108) | (131) | | South32 Group (excluding South Africa Energy Coal) | 10,630 | 6,462 | 3,967 | 1,389 | | South Africa Energy Coal | - | 861 | - | (150) | | South32 Group | 10,630 | 7,323 | 3,967 | 1,039 | (1) South 32'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$110 million for coal, US$140 million for freight services, US$165 million for raw materials and US$45 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$8 million for freight services, nil for raw materials and nil for manganese. FY22 Third party products and services sold comprises US$40 million for aluminium, US$30 million for alumina, US$13 million for coal, US$95 million for freight services, US$92 million for raw materials and US$15 million for manganese. Underlying EBIT on third party products and services comprises US$8 million for aluminium, nil for alumina, US$5 million for coal, nil for freight services, US$1 million for raw materials and nil for manganese. SOUTH32 ANNUAL REPORT 2022 45 ### Financial and operational performance summary continued ## WORSLEY ALUMINA Location: Western Australia, Australia South32 share: 86 per cent | South32 holds an 86 per cent interest in | Safety | Financial performance | | --- | --- | --- | | Worsley Alumina, while Japan Alumina | Total Recordable Injury Frequency (TRIF) | Underlying EBIT increased by 170 per cent | | Associates (Australia) Pty Ltd owns 10 per | was 6.5 for Worsley Alumina in FY22, a | (or US$243 million) in FY22, to | | cent and Sojitz Alumina Pty Ltd owns four | four per cent decrease year-on-year. | US$386 million, as higher average realised | | per cent. | | alumina prices (+US$461 million) more | Volumes than offset higher caustic soda prices Bauxite is mined near the town of Worsley Alumina saleable production (-US$113 million), price-linked freight rates Boddington, 130 kilometres south-east increased by one per cent (or 28kt), to a (-US$47 million) and energy costs of Perth. It is transported by overland record of 3,991kt in FY22, as the refinery (-US$18 million). conveyor to the alumina refinery near Collie delivered above its nameplate capacity and turned into alumina powder, before (4.6Mtpa, 100 per cent basis), realising the Capital expenditure being transported by rail to the Bunbury benefit of embedded improvements. Capital expenditure was unchanged at port. It is then shipped to smelters around US$55 million in FY22 as we continued to the world, including our Hillside Aluminium Operating costs invest in additional bauxite residue disposal and Mozal Aluminium smelters in southern Operating unit costs increased by capacity and progressed our work to Africa. 24 per cent (or US$51/t) in FY22, to access new bauxite mining areas. US$265/t, as the benefit of record volumes South32 share FY22 FY21 was more than offset by a significant rise in Community investment Alumina production (kt) 3,991 3,963 caustic soda prices (FY22: US$581/t, FY21: We invested US$1.6 million in communities Alumina sales (kt) 3,974 4,004 US$302/t) that accounted for more than around Worsley Alumina in FY22, with a Realised sales price 60 per cent of the increase, and elevated focus on environmental protection and (US$/t) 409 293 global freight rates. restoration, economic diversification Operating unit cost and supporting education and cultural (US$/t) 265 214 programs for Aboriginal and Torres Strait Islander Peoples. South32 share (US$M) FY22 FY21 Underlying revenue 1,625 1,173 Underlying EBITDA 571 318 Underlying EBIT 386 143 Net operating assets 2,571 2,667 Capital expenditure 55 55 Safe and reliable 47 51 Improvement and life extension 8 4 Community investment 1.6 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 | The alumina produced from the refinery | | | Volumes | | --- | --- | --- | --- | --- | | in the non-operated Mineração Rio do | is exported through the Alumar port | | | Brazil Alumina saleable production | | Norte (MRN) bauxite mine, following the | and supplied to the co-located Alumar | | | decreased by seven per cent (or 101kt) | | acquisition of an additional 18.2 per cent | aluminium smelter. | | | to 1,297kt in FY22 as the refinery returned | | interest in April 2022. Vale holds | | | | to nameplate capacity (3.86Mtpa, | | | South32 share FY22 | (1) | FY21 | | | 40 per cent, Rio Tinto Alcan holds | | | | 100 per cent basis) from October 2021, | | 12 per cent, Companhia Brasileira de | Alumina production (kt) 1,297 1,398 | | | | following an incident in July 2021 that Aluminio S.A. holds 10 per cent and Hydro Alumina sales (kt) 1,299 1,391 damaged one of the two bauxite ship holds five per cent. Realised sales price unloaders at the operation. (US$/t) 403 288 The MRN mine is an open-cut strip mining Operating unit cost Operating costs operation. Mined ore is hauled to primary (US$/t) 288 203 Operating unit costs increased by crushers and then transported by conveyor 42 per cent to US$288/t in FY22 with lower belt to the beneficiation plant. The bauxite (1) South32 share (US$M) FY22 FY21 volumes and additional costs to recover produced from the MRN mine is sold to its Underlying revenue 524 400 from the bauxite ship unloader outage shareholders. Together with our partners Underlying EBITDA 150 117 adding to raw material and energy cost at MRN we continue to progress a pre- Underlying EBIT 89 66 inflation in H2 FY22. feasibility study for a life extension project. Net operating assets 696 570 Our share of bauxite produced from Financial performance Capital expenditure 51 25 the MRN mine is supplied to the Alumar Underlying EBIT increased by 35 per cent alumina refinery. Safe and reliable 51 25 (or US$23 million) in FY22, to US$89 million, | We also hold a 36 per cent share of the | as higher average realised alumina prices | | --- | --- | | non-operated Alumar alumina refinery. | (+US$151 million) more than offset | | Alcoa holds 54 per cent and Rio Tinto Alcan | higher raw material and energy prices | | holds 10 per cent. | (-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$51 million in FY22 as we stepped-up our rate of investment in bauxite residue disposal capacity. (1) The increase in ownership in MRN has triggered a change in accounting treatment with the investment accounted for using the equity method (formerly classified as an investment in an equity instrument designated as fair value through other comprehensive income). SOUTH32 ANNUAL REPORT 2022 47 ### Financial and operational performance summary continued ## BRAZIL ALUMINIUM Location: Maranhão, Brazil South32 share: 40 per cent South32 holds a 40 per cent share in the South32 share FY22 FY21 Volumes non-operated Alumar aluminium smelter, Brazil Aluminium saleable production was Aluminium production (kt) 0.3 – which was restarted during FY22 after 0.3kt in FY22 with first production achieved Aluminium sales (kt) – – being on care and maintenance since 2015. in Q4 FY22 following the restart of the Realised sales price Alcoa holds a 60 per cent share. smelter. (US$/t) – – Following the restart, first production was Operating unit cost Financial performance achieved in the June 2022 quarter, with full (US$/t) – – Underlying EBIT in FY22 was a loss of capacity from the smelter’s three potlines US$44 million as costs incurred to support expected to be achieved in FY23. It has South32 share (US$M) FY22 FY21 the smelter’s restart were expensed. No a solid metal production capacity of Underlying revenue – – revenue was recognised in FY22 as we built 447kt per year (on a 100 per cent basis) and Underlying EBITDA (43) (3) inventory in line with our restart plan. | produces standard aluminium ingots for | Underlying EBIT (44) (3) | | | --- | --- | --- | | the domestic and export markets. | Net operating assets 46 1 | Our alumina supply is sourced from the co- | | | Capital expenditure 1 – | located Brazil Alumina refinery with prices | Our share of Brazil Aluminium is powered Safe and reliable 1 – linked to the Platts index on a month minus by 100 per cent cost efficient renewable one (M-1) basis. power. 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 | Safety | Capital expenditure | | --- | --- | --- | | Richards Bay in the South African province | TRIF was 1.3 for Hillside Aluminium in FY22, | Capital expenditure increased by | | of KwaZulu-Natal and is 100 per cent | a 160 per cent increase year-on-year. | US$7 million to US$24 million in FY22 | | owned and operated by South32 with | | as we commenced our roll-out of the | | a solid metal production capacity of | Volumes | | AP3XLE technology. The AP3XLE energy 720kt per year. Hillside Aluminium saleable production efficiency project is expected to reduce decreased by 3kt to 714kt in FY22 as the the smelter’s energy consumption and in Hillside Aluminium is the largest aluminium smelter continued to test its maximum turn lower greenhouse gas emissions by smelter in the southern hemisphere. The technical capacity, despite the impact of approximately 150,000 to 200,000 tonnes smelter produces high-quality, primary increased load-shedding. per annum once fully deployed. aluminium for the domestic and export markets. | | Operating costs | Community investment | | --- | --- | --- | | To support the development of the | Operating unit costs increased by | We invested US$13.1 million in communities | | downstream aluminium industry in South | 31 per cent in FY22, to US$2,137/t, as a | around Hillside Aluminium in FY22, with | | Africa a portion of liquid metal is supplied | significant rise in raw material input costs | a focus on local skills and economic | | to Hulamin and other local companies that | created inflationary pressure across the | development, education and strengthening | | sell products in the domestic and export | aluminium industry. Alumina, coke, pitch | healthcare services. | | markets. | and electricity accounted for 77 per cent of | | the smelter’s cost base in FY22 (FY21: | South32 share FY22 FY21 | 78 per cent). The smelter sources its | | --- | --- | | Aluminium production (kt) 714 717 | alumina from our Worsley Alumina refinery | | Aluminium sales (kt) 713 707 | with prices linked to the PAX on a M-1 | | Realised sales price | basis. | (US$/t) 3,161 2,137 Financial performance Operating unit cost (US$/t) 2,137 1,631 Underlying EBIT increased by 127 per cent (or US$373 million) in FY22, to South32 share (US$M) FY22 FY21 US$666 million, as stronger aluminium prices (+US$731 million) more than offset Underlying revenue 2,254 1,511 higher raw material input prices Underlying EBITDA 730 358 (-US$234 million), and power costs Underlying EBIT 666 293 (-US$32 million). While additional shipping Net operating assets 927 733 costs (-US$25 million) from higher freight Capital expenditure 24 17 rates and demurrage costs due to poor Safe and reliable 20 17 third party port performance impacted Improvement and life earnings, the extent of those impacts was extension 4 – mitigated as we established alternative Community investment 13.1 3.0 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. SOUTH32 ANNUAL REPORT 2022 49 ### 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 South32 share FY22 (1) FY21 Operating costs Mozal Aluminium, following the acquisition Operating unit costs increased by Aluminium production (kt) 278 265 of an additional 16.6 per cent share in 32 per cent, to US$2,243/t in FY22, as a Aluminium sales (kt) 276 262 May 2022. The Industrial Development significant rise in raw material input costs Realised sales price Corporation of South Africa Limited created inflationary pressure across the (US$/t) 3,348 2,206 holds 24 per cent, Mitsubishi Corporation aluminium industry. Alumina, coke, pitch Operating unit cost (through MCA Metals Holding GmbH) holds and electricity accounted for 74 per cent (US$/t) 2,243 1,702 | 8.4 per cent and the Government of the | | | | of the smelter’s cost base in FY22 (FY21: | | --- | --- | --- | --- | --- | | Republic of Mozambique holds 3.9 per cent | | (1) | | 73 per cent). | | | South32 share (US$M) FY22 | | FY21 | | (through preference shares). Underlying revenue 924 578 The smelter sources its alumina from | Mozal Aluminium is located 20 kilometres | Underlying EBITDA 305 132 | our Worsley Alumina refinery with | | --- | --- | --- | | west of Mozambique’s capital city Maputo | Underlying EBIT 271 98 | approximately 50 per cent priced as a | | and has a solid metal production capacity | Net operating assets 615 456 | percentage of the LME aluminium index | | of 580kt per year (on a 100 per cent basis). | Capital expenditure 11 11 | under a legacy contract and the remainder | | | Safe and reliable 10 10 | linked to the PAX on a M-1 basis, with | Mozal Aluminium is the only aluminium Improvement and life caps and floors embedded within specific smelter in Mozambique and the second extension 1 1 contracts that reset each calendar year. largest aluminium smelter in Africa (behind Community investment 1.6 1.8 our Hillside Aluminium smelter in South Financial performance Africa). It produces standard aluminium Safety Underlying EBIT increased by 177 per cent ingots. | | TRIF was 0.9 for Mozal Aluminium in FY22, | (or US$173 million) in FY22, to | | --- | --- | --- | | To support the development of the | an 80 per cent increase year-on-year. | US$271 million, as stronger realised | | downstream aluminium industry in | | aluminium prices (+US$297 million) and the | | | Volumes | benefit of our increased ownership more | Mozambique a portion of liquid metal is | supplied to Midal Cables, a local company | Mozal Aluminium saleable production | than offset higher raw material input prices | | --- | --- | --- | | that sells products in the domestic and | increased by five per cent (or 13kt) to | (-US$109 million) and freight related costs | | export markets. | 278kt in FY22 with the smelter benefitting | (-US$11 million). 127 pots were relined | | | from our roll-out of the AP3XLE energy | in FY22 at a cost of US$266,000 per pot | | | efficiency technology, which partially offset | (FY21: 134 pots at US$252,000 per pot). | the impact of increased load-shedding. | Our equity share of production reflects | Capital expenditure | | --- | --- | | the completion of our acquisition of an | Capital expenditure was unchanged at | | additional 16.6 per cent shareholding in the | US$11 million in FY22 as the smelter | | smelter on 31 May 2022. | 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. | South32 share | FY22^{(1)} | FY21 | | --- | --- | --- | | Ore mined (Mt) | 12.7 | - | | Ore processed (Mt) | 7.5 | - | | Ore grade processed (%, Cu) | 0.42 | - | | Payable copper equivalent production (kt)^{(2)} | 29.5 | - | | Payable copper production (kt) | 25.3 | - | | Payable molybdenum production (kt) | 0.4 | - | | Payable gold production (koz) | 9.6 | - | | Payable silver production (koz) | 253 | - | | Payable copper sales (kt) | 27.7 | - | | Payable molybdenum sales (kt) | 0.6 | - | | Payable gold sales (koz) | 9.9 | - | | Payable silver sales (koz) | 182 | - | | Realised copper sales price (US$/lb) | 3.50 | - | | Realised molybdenum sales price (US$/lb) | 18.48 | - | | Realised gold sales price (US$/oz) | 1,934 | - | | Realised silver sales price (US$/oz) | 23.5 | - | | Operating unit cost: (US$/t ore processed)^{(3)} | 14.6 | - | | Operating unit cost: (US$/lb CuEq)^{(4)} | 1.61 | - | | South32 share (US$/lb) | FY22^{(1)} | FY21 | | --- | --- | --- | | Underlying revenue | 341 | - | | Underlying EBITDA | 133 | - | | Underlying EBIT | 75 | - | | Net operating assets | 1,402 | - | | Capital expenditure | 81 | - | | Safe and reliable improvement and life extension | 36 | - | | Exploration expenditure | 45 | - | | Exploration expensed | 2 | - | | | 1 | - | ## 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 277kt of copper, 0.6kt of molybdenum, 99koz 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. (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, FY22, net earnings for copper (US$1.73/lb), molybdenum (US$1.73/lb), gold (US$1.79/koz) and silver (US$1.73/lb) 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$1.55/lb), molybdenum (US$18.45/lb), gold (US$1.05/koz) and silver (US$1.05/lb) have been used for FY22 Operating unit cost. SOUTH32 ANNUAL REPORT 2022 51 ### Financial and operational performance summary continued ## CANNINGTON Location: Queensland, Australia South32 share: 100 per cent Located in north-west Queensland, South32 share FY22 FY21 Safety Cannington is 100 per cent owned by TRIF was 9.1 for Cannington in FY22, Ore mined (kwmt) 2,753 2,819 South32 and is one of the world’s largest a 26 per cent increase year-on-year. Ore processed (kdmt) 2,618 2,746 producers of silver and lead. Ore grade processed Volumes Cannington consists of an underground (g/t, Ag) 180 185 Cannington payable zinc equivalent hard rock mine and surface processing Ore grade processed production decreased by six per cent (or facility, a road-to-rail transfer facility and (%, Pb) 5.4 5.7 19.7kt), to 299.3kt in FY22, as we completed a concentrate handling and ship loading Ore grade processed (%, Zn) 3.5 3.5 planned maintenance and built run of mine facility at the Port of Townsville. In Q4 stocks during Q4 FY22 to support the | FY22 we transitioned to 100 per cent truck | Payable zinc equivalent | | | | | --- | --- | --- | --- | --- | | | | (1) | | operation’s transition to 100 per cent truck | | | production (kt) | | 299.3 319.0 | | haulage to bring product to the surface. haulage. Payable silver production Silver, lead and zinc are extracted from (koz) 12,946 13,655 Operating costs the ore using grinding, sequential flotation Payable lead production and leaching techniques that produce Operating unit costs increased by seven (kt) 120.6 131.8 high-grade, marketable lead and zinc per cent (or US$9/t) in FY22, to US$133/t, Payable zinc production concentrates with a high silver content. (kt) 64.5 67.7 as we lowered volumes to complete scheduled maintenance and work to Payable silver sales (koz) 12,898 13,736 support the transition to 100 per cent truck Payable lead sales (kt) 122.2 131.7 haulage. Payable zinc sales (kt) 66.2 69.0 Realised silver sales price Financial performance (US$/oz) 21.0 25.4 Underlying EBIT decreased by Realised lead sales price 10 per cent (or US$35 million) in FY22, (US$/t) 2,046 1,862 to US$315 million, as our reduced sales Realised zinc sales price volumes (-US$49 million) and higher (US$/t) 3,248 2,357 freight rates (-US$6 million) more than Operating unit cost (2) offset higher prices (+US$28 million) and (US$/t ore processed) 133 124 initiatives to reduce our spend on labour and consultant activity (+US$9 million). South32 share (US$M) FY22 FY21 Underlying revenue 736 757 Capital expenditure Underlying EBITDA 388 416 Capital expenditure increased by | Underlying EBIT 315 350 | US$2 million to US$45 million in FY22 as | | --- | --- | | Net operating assets 141 195 | we invested to support the operation’s | | Capital expenditure 45 43 | transition to 100 per cent truck haulage. | Safe and reliable 43 41 Community investment Improvement and life | extension 2 2 | We invested US$0.3 million in communities | | --- | --- | | Exploration expenditure 3 2 | around Cannington in FY22, with a focus | | Exploration expensed 2 2 | on education, local economic participation, | natural resource resilience and community Community investment 0.3 0.4 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 South32 share FY22 FY21 Operating costs mine and smelter located in the Córdoba Operating unit costs increased by Ore mined (kwmt) 4,867 3,238 area of northern Colombia, consisting of eight per cent in FY22, to US$4.34/lb, as a Ore processed (kdmt) 2,703 2,385 a truck and shovel open-cut mine and a significant increase in price-linked royalties Ore grade processed processing plant. South32 owns 99.9 per and energy prices, along with costs to (%, Ni) 1.73 1.63 cent of Cerro Matoso. Current and former support processing of additional higher- Payable nickel production employees own 0.02 per cent, with the grade Q&P volumes, were partially offset by (kt) 41.7 34.1 balance of shares held in a reserve account volume benefits and a weaker Colombian Payable nickel sales (kt) 41.8 33.5 following a buy-back. peso. The operation also recognised a Realised sales price (US$/lb) 10.08 6.68 one-off benefit related to the reversal of a Cerro Matoso is a major producer of nickel royalty provision. contained in ferronickel which is used to Operating unit cost (1) make stainless steel. Ore mined is blended (US$/lb) 4.34 4.01 Financial performance | with ore from stockpiles, which is then | Operating unit cost | | | | | --- | --- | --- | --- | --- | | | | (2) | | Underlying EBIT increased by 280 per cent | | | (US$/t) | | 148 124 | | dried in rotary kilns and smelted in two (or US$341 million) in FY22, to electric arc furnaces where ferronickel is US$463 million, as higher realised nickel produced. South32 share (US$M) FY22 FY21 prices (+US$313 million) and sales volumes Underlying revenue 929 493 The Queresas and Porvenir (Q&P) project (+US$122 million) more than offset higher Underlying EBITDA 529 197 delivered first ore in April 2021 contributing price-linked royalties (-US$31 million), Underlying EBIT 463 122 higher feed grades, and the Ore Sorting energy costs (-US$17 million) and additional Net operating assets 349 405 and Mechanical Ore Concentration expenditure on labour and contractors to Capital expenditure 37 45 (OSMOC) project, which is currently in support mining from the Q&P pit Safe and reliable 18 30 its final construction phase, is expected (-US$7 million). Improvement and life to increase Cerro Matoso’s processing extension 19 15 Capital expenditure capacity and maintain payable nickel Community investment 3.9 3.3 Safe and reliable capital expenditure production by offsetting natural grade decline from FY23. decreased by US$12 million, to Safety US$18 million in FY22, following the prior TRIF was 2.8 for Cerro Matoso in FY22, period’s completion of the major furnace a 51 per cent decrease year-on-year. refurbishment. Improvement and life extension capital expenditure increased by Volumes US$4 million, to US$19 million in FY22, as Cerro Matoso payable nickel production we progressed the final construction phase increased by 22 per cent (or 7.6kt) to of the OSMOC project. 41.7kt in FY22 as throughput recovered | following completion of a major furnace | We are working to extend the mining | | --- | --- | | refurbishment in FY21 and we added | contract at Cerro Matoso by 15 years | | higher-grade ore from the Q&P pit, | from 2029 to 2044 with the extension | | increasing average nickel grades by | underpinned by the expanded processing | | six per cent (FY22: 1.73 per cent; FY21: | capacity that is expected to be delivered | | 1.63 per cent). | 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. SOUTH32 ANNUAL REPORT 2022 53 ### Financial and operational performance summary continued ## ILLAWARRA METALLURGICAL COAL Location: New South Wales, Australia South32 share: 100 per cent | Located in the southern coalfields of New | Safety | Capital expenditure | | --- | --- | --- | | South Wales, Illawarra Metallurgical Coal | TRIF was 16.5 for Illawarra Metallurgical | Safe and reliable capital expenditure | | is 100 per cent owned by South32 and | Coal in FY22, a 16 per cent decrease year- | increased by US$26 million, to | | operates two underground metallurgical | on-year. | US$177 million in FY22, as we invested in | | coal mines, Appin mine and Dendrobium | | additional coal clearance and ventilation | | mine, and West Cliff and Dendrobium coal | Volumes | | infrastructure to support the transition to | preparation plants. Illawarra Metallurgical | Illawarra Metallurgical Coal saleable | a single longwall at Appin. Notwithstanding | | --- | --- | --- | | Coal also manages the Port Kembla Coal | production decreased by 15 per cent | the increase, FY22 expenditure was | | Terminal on behalf of a consortium of | (or 1,136kt) to 6,509kt in FY22 as we | US$38 million below our original guidance | | partners. | completed three longwall moves during | as adverse weather and COVID-19 related | | | the year and ceased sales of low-margin | labour restrictions impacted the ability of | Illawarra Metallurgical Coal produces coal wash material. The impact of adverse the operation to complete planned work. premium-quality, hard coking coal weather and COVID-19 related labour for steelmaking, and energy coal. Improvement and life extension capital restrictions also impacted the operation’s The operation supports the domestic expenditure decreased by US$25 million ability to maintain planned development steelmaking industry by supplying to US$12 million in FY22 as we scaled back rates during the period. product to BlueScope Steel’s Port Kembla activity on the Dendrobium Next Domain Steelworks, the largest steel production project. Subsequent to the end of the Operating costs facility in Australia. reporting period, we announced that we Operating unit costs increased by 45 per cent, to US$126/t in FY22, with a will not proceed with an investment in the South32 share FY22 FY21 significant increase in price-linked royalties, Dendrobium Next Domain project following Metallurgical coal due to higher prices, accounting for 38 per our consideration of recently completed production (kt) 5,712 6,170 | | cent of the change. Lower volumes and | study work and extensive analysis of | | | --- | --- | --- | --- | | Energy coal production | | | (4) | | | increased contractor and maintenance | alternatives considered for the complex | . | (kt) 797 1,475 activities were the other main drivers. Metallurgical coal sales Community investment (1) (kt) 5,823 6,074 Financial performance We invested US$1.2 million in communities (1) Energy coal sales (kt) 783 1,542 Underlying EBIT increased by around Illawarra Metallurgical Coal in Realised metallurgical US$1,491 million, to US$1,388 million FY22, with a focus on education, health, coal sales price (US$/t) 381 115 in FY22, with higher realised prices community support and services, and local Realised energy coal (+US$1,635 million), partially offset economic development. sales price (US$/t) 156 40 by higher price-linked royalties Operating unit cost (2) (-US$101 million), lower sales volumes (US$/t) 126 87 (-US$55 million), and increased contractor and maintenance activity (-US$39 million) South32 share (US$M) FY22 FY21 to support the additional longwall moves. (3) | Underlying revenue | 2,338 758 | | | --- | --- | --- | | Underlying EBITDA 1,507 94 | | Depreciation decreased by US$78 million, | | Underlying EBIT 1,388 (103) | | to US$119 million in FY22, following a | | Net operating assets 786 612 | | non-cash impairment of the operation’s | | Capital expenditure 189 188 | | carrying value in FY21. | Safe and reliable 177 151 Improvement and life extension 12 37 Exploration expenditure 11 14 Exploration expensed 9 5 Community investment 1.2 1.0 (1) Volumes and prices do not include any third party trading that may be undertaken independently of equity production. (2) Operating unit cost is Revenue less Underlying EBITDA, excluding third party sales, divided by sales volumes. (3) Illawarra Metallurgical Coal Revenue includes metallurgical coal and energy coal sales Revenue. (4) Refer to market release dated 23 August 2022 at www.south32.net 54 OPERATING AND FINANCIAL REVIEW ## AUSTRALIA MANGANESE Location: Northern Territory, Australia South32 share: 60 per cent Australia Manganese consists of Groote South32 share (US$M) FY22 FY21 Operating costs Eylandt Mining Company Pty Ltd (GEMCO) Operating unit costs increased by Underlying revenue 848 730 in the Northern Territory. South32 owns 22 per cent, to US$1.86/dmtu in FY22, due Manganese ore 848 685 60 per cent of GEMCO and Anglo American to the lower volumes together with higher Manganese alloy – 57 Plc holds the remaining 40 per cent. diesel prices and consumable costs. Intra-segment GEMCO is an open-cut strip mining elimination – (12) Financial performance operation, producing high-grade Underlying EBITDA 488 385 Manganese ore Underlying EBIT increased manganese ore and is located in close Manganese ore 488 389 by 31 per cent (or US$94 million), to proximity to Asian export markets. It is one Manganese alloy – (4) US$402 million in FY22, as higher realised of the largest manganese ore producers in Underlying EBIT 402 304 prices (+US$203 million) more than offset the world. Manganese ore 402 308 the impact of lower sales volumes Manganese alloy – (4) | The Tasmanian Electro Metallurgical | | (-US$28 million), higher freight rates | | --- | --- | --- | | Company (TEMCO) manganese alloy | Net operating assets 258 243 | (-US$35 million), diesel prices | | smelter was wholly owned by GEMCO until | Manganese ore 258 243 | (-US$13 million) and consumable costs | | the completion of its divestment in FY21. | Capital expenditure 62 55 | (-US$9 million). | Safe and reliable 56 53 South32 share FY22 FY21 Our FY22 realised price improved year- Improvement and life on-year as we benefitted from improved Manganese ore extension 6 2 production (kwmt) 3,363 3,529 market conditions and achieved the high Exploration expenditure 1 2 grade 44 per cent manganese lump ore Manganese alloy Exploration expensed – 1 production (kt) – 51 index, despite our low-cost Premium Community investment 1.1 1.7 Concentrate Ore (PC02) circuit operating Manganese ore sales (kwmt) 3,372 3,621 above its design capacity, contributing Safety External customers 3,372 3,506 11 per cent of total production (FY21: TRIF was 7.1 for GEMCO in FY22, 10 per cent). TEMCO – 115 a 13 per cent increase year-on-year. Manganese alloy sales Capital expenditure (kt) – 59 Volumes Safe and reliable capital expenditure Realised external Australia Manganese saleable ore increased by US$3 million, to US$56 million | manganese ore sales | | | production decreased by five per cent | | | --- | --- | --- | --- | --- | | | (1)(2) | | | in FY22, as we continued to invest in | | price (US$/dmtu, FOB) | | 5.29 4.13 | (or 166kwmt), to 3,363kwmt in FY22, as | | tailings storage capacity. Ore Operating unit cost weather-related disruptions and COVID-19 (2)(3) (US$/dmtu) 1.86 1.52 workplace restrictions prevented the Improvement and life extension capital | re-build of stockpiles ahead of the wet | expenditure increased by US$4 million, to | | --- | --- | | season. This contributed to adverse ore | US$6 million in FY22 as we progressed the | | handling characteristics that resulted in a | feasibility study for our Eastern Leases | | lower yield at the primary concentrator. | 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$63 million), consistent with our FOB cost guidance. (3) FOB ore operating unit cost is Underlying revenue less Underlying EBITDA, freight and marketing costs, divided by ore sales volume. SOUTH32 ANNUAL REPORT 2022 55 ### Financial and operational performance summary continued ## SOUTH AFRICA MANGANESE Location: Northern Cape and Gauteng, South Africa South32 share: Ore - 44.4 per cent, Alloy - 60 per cent South Africa Manganese consists of two South32 share (US$M) (1) FY22 FY21 Financial performance manganese mines and the Metalloys Manganese ore Underlying EBIT increased Underlying revenue 419 337 manganese alloy smelter which was placed by 16 per cent (or US$11 million), to Manganese ore 419 330 on care and maintenance in FY20. US$79 million in FY22, as higher realised Manganese alloy – 7 prices (+US$76 million) and sales volumes Hotazel Manganese Mines (HMM) is Underlying EBITDA 78 64 (+US$13 million) more than offset increased located in the Kalahari Basin and operates Manganese ore 99 84 freight costs (-US$46 million) and a stock two manganese mines, the open-cut Manganese alloy (21) (20) drawdown as we optimised our sales mix of Mamatwan mine and the underground Underlying EBIT 58 48 premium material (-US$15 million). Wessels mine. South32 holds a Manganese ore 79 68 60 per cent interest in Samancor Holdings Our realised sales price in FY22 was a Manganese alloy (21) (20) (Pty) Ltd (Samancor Holdings) and Anglo premium of approximately 18 per cent to Net operating assets/ American Plc holds the remaining the medium grade 37 per cent manganese (liabilities) 135 152 40 per cent. Samancor Holdings indirectly lump ore index, as we maximised our Manganese ore 211 212 owns 74 per cent of HMM, which gives revenue by optimising our sales mix Manganese alloy (76) (60) South32 its ownership interest of with additional volumes of our premium Capital expenditure 19 15 44.4 per cent. The remaining 26 per cent products. Safe and reliable 14 15 of HMM is owned by Broad-Based Black Improvement and life Manganese alloy Underlying EBIT Economic Empowerment entities. extension 5 – was a loss of US$21 million in FY22 | South32 holds an effective 60 per cent | | | Exploration expenditure 1 1 | recognising an adjustment to the closure | | --- | --- | --- | --- | --- | | interest in Samancor Manganese (Pty) Ltd | | | Exploration expensed 1 1 | and rehabilitation provision with the | | (Metalloys manganese alloy smelter). The | | | Community investment 3.7 2.1 | Metalloys smelter remaining on care and | | site remains on care and maintenance as | | | | maintenance. | | we assess future options for the smelter. | | | Safety | | | | | | TRIF was 3.1 for HMM in FY22, a 72 per cent | Capital expenditure | | South32 share | (1) | FY22 FY21 | | | | | | | increase year-on-year. | Safe and reliable capital expenditure | Manganese ore decreased by US$1 million, to US$14 million production (kwmt) 2,069 2,060 Volumes in FY22. Improvement and life extension Manganese alloy South Africa Manganese saleable ore capital expenditure increased to production (kt) – – production was largely unchanged at US$5 million in FY22, as we progressed Manganese ore sales 2,069kwmt in FY22 as we increased work to open up new mining areas at (kwmt) 2,170 2,035 volumes of premium material from our Mamatwan. | External customers 2,170 2,035 | Mamatwan mine during the year, more | | | --- | --- | --- | | Manganese alloy sales | than offsetting the impact of planned | Community investment | | (kt) – 11 | maintenance. | | We invested US$3.7 million in communities Realised external around South Africa Manganese in FY22, manganese ore sales Operating costs with a focus on education, health and local (2)(3) price (US$/dmtu, FOB) 3.92 3.53 Operating unit costs increased by economic development. Ore Operating unit cost 10 per cent, to US$2.73/dmtu in FY22, as (3)(4) (US$/dmtu) 2.73 2.48 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. (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: | VARIETY | FY22 | FY21 | | --- | --- | --- | | **Group Production** | | | | Underlying revenue | 10,030 | 6,899 | | Related operating costs (net of other income) | (6,083) | (5,881) | | Underlying EBIT | 3,047 | 1,018 | | Margin on Group production | 39.6% | 14.8% | | **Third party products** | | | | Underlying revenue | 600 | 424 | | Related operating costs (net of other income)^{(1)} | (580) | (403) | | **Third party Underlying EBIT** | 20 | 21 | | Margin on third party products | 3.3% | 5.0% | (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. ## 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)$^{(2)}$ | | FY22 | FY23^{(1)} | FY24^{(1)} | Key guidance assumptions | | --- | --- | --- | --- | --- | | **Worsley Alumina** | | | | | | Alumina production (kt) | 3,991 | 4,000 | 4,000 | Expected to sustain above nameplate capacity in FY23 and FY24 | | **Brazil Alumina (non-operated)** | | | | | | Alumina production (kt) | 1,397 | 1,395 | 1,400 | Expected to increase by eight per cent in FY23 as the refinery returns to normalised production rates, before creeping bid in FY24 | | **Brazil Aluminium (non-operated)** | | | | | | Aluminium production (kt) | 0.3 | 4100 | 179 | Lowered in FY23 due to the slower ramp-up to nameplate capacity of all three pollines (LPR4tpa, 40 per cent basis) | | **Hillside Aluminium** | | | | | | Aluminium production (kt) | 714 | 720 | 720 | Expected to test its maximum technical capacity Guidance remains subject to load-shedding | | **Mozai Aluminium** | | | | | | Aluminium production (kt) | 378 | 370 | 370 | Expected to benefit from AFDALE energy efficiency project and our increased ownership interest Guidance remains subject to load-shedding | SOUTH32 ANNUAL REPORT 2022 57 Financial and operational performance summary continued Production guidance (South32's share) (continued) | | FY22 | FY23e* | FY24e* | Key guidance assumptions | | --- | --- | --- | --- | --- | | Sierra Gorda (non-operated) | | | | | | Ore processed (kit) | 7.5 | 22.2 | N/A | Throughput capacity expected to increase by six per cent to approximately 50Mpa (100 per cent basis) by Q2 FY23 as the benefits of the plant de-bottlenecking project are realised | | Payable copper equivalent production (kt) (1) | 30.6 | 89.0 | N/A | | | Payable copper production (kt) | 25.3 | 71.8 | N/A | | | Payable molybdenum production (kt) | 0.4 | 1.5 | N/A | | | Payable gold production (kcd) | 9.6 | 29.9 | N/A | | | Payable silver production (kcd) | 253 | 582 | N/A | FY24 production guidance not provided | | Cannington | | | | | | Ore processed (kdmt) | 2,618 | 2,850 | 2,700 | Expected to benefit from the optimised mine configuration delivering earlier access to higher-grade material. Recent strong production performance is expected to continue into FY24 | | Payable zinc equivalent production (kt) (1) | 224.2 | 236.1 | 213.4 | | | Payable silver production (kcd) | 12,946 | 13,500 | 13,500 | | | Payable lead production (kt) | 120.6 | 122.0 | 124.0 | | | Payable zinc production (kt) | 64.5 | 72.0 | 68.0 | | | Cerro Matoso | | | | | | Ore to kiln (kt) | 2,703 | 2,850 | 2,850 | Expected to increase by four per cent from FY22 as plant availability returns to normalised levels and the ODAOC project is commissioned, mitigating expected grade decline | | Payable nickel production (kt) | 41.7 | 43.5 | 43.5 | | | Iliawarra Metallurgical Coal | | | | | | Total coal production (kt) | 6,509 | 7,400 | 5,300 | Expected to increase by 14 per cent in FY23 with fewer longwall moves and a recovery from wet weather, subject to labour productivity as the operation is currently negotiating the Appin Enterprise Agreements | | Metallurgical coal production (kt) | 5,712 | 6,500 | 4,600 | | | Energy coal production (kt) | 797 | 900 | 700 | | | | | | | 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 5.5Mpa to FY28 | | Australia Manganese | | | | | | Manganese ore production (kwmt) | 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 | | South Africa Manganese | | | | | | Manganese ore production (kwmt) | 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 owner ship share of operations is as per Institute (licon page 4). (2) The description in refer to an estimate of forecast year, as 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 Revenues by the price of copper. FY23 realised prices for copper (US$3.50 M), molybdenum (US$28.40 M), gold (US$1.70 M) and silver (US$2.15 M) have been used for FY22 and FY23. (4) Payable zinc equivalent (kt) was calculated by aggregating revenues from payable silver, lead and zinc, and dividing the total Revenues by the price of zinc. FY22 realised prices for zinc (US$2.24 M), lead (US$2.04 M) and silver (US$2.10 M) 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$50 million of annualised savings across the Group through the simplification of our functional structures and footprint (since FY20). This focus combined with an improvement in planned volumes and lower producer currencies is expected to provide partial relief from further upward pressure on our Operating unit costs in FY23, despite continuing industry-wide inflation in raw material input prices, labour and energy. (1)(2) Operating unit cost performance and guidance FY21 FY22 FY23e (3)(4) Commentary Worsley Alumina (US$/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 Not FY21 versus FY22: Lower volumes and additional costs to provided recover from the bauxite ship unloader outage (US$7/t), added to higher raw material (US$42/t) and energy costs (US$13/t) FY23 key guidance assumptions: Not provided but expected to continue to be influenced by energy and raw material input prices, including caustic soda Brazil Aluminium (non-operated) (US$/t) N/A N/A Not FY23 key guidance assumptions: Not provided but expected provided to be influenced by the ramp-up profile for all three potlines and the price of raw material inputs Hillside Aluminium (US$/t) 1,631 2,137 Not FY21 versus FY22: Significant rise in raw material input costs provided including alumina, coke and pitch (US$323/t), and energy cost inflation (US$45/t) FY23 key guidance assumptions: Not provided but expected to continue to be influenced by the price of raw material inputs, the South African rand and inflation-linked energy costs Mozal Aluminium (US$/t) 1,702 2,243 Not FY21 versus FY22: Significant rise in raw material input costs provided including alumina, coke and pitch (US$393/t), and energy cost inflation (US$29/t) FY23 key guidance assumptions: Not provided but expected to continue to be influenced by the price of raw materials inputs, the South African rand and inflation-linked energy costs Sierra Gorda (non-operated) (5) (US$/t) N/A 14.6 14.8 FY22 Operating unit costs reflect our first period of ownership (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 Cannington (5) (US$/t) 124 133 129 FY21 versus FY22: Impacted by planned lower throughput as we completed scheduled maintenance and work to support the transition to 100 per cent trucking FY23 key guidance assumptions: Higher throughput from the optimised mine plan and a weaker Australian dollar, to more than offset higher energy prices Cerro Matoso (US$/lb) 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$0.13/lb), partially offset by the benefit of additional volumes SOUTH32 ANNUAL REPORT 2022 59 Financial and operational performance summary continued Operating unit cost performance and guidance(14)continued | | FY21 | FY22 | FY23e(1) | Commentary | | --- | --- | --- | --- | --- | | Illawarra Metallurgical Coal | | | | | | (US$/t) | 87 | 126 | 116 | FY21 versus FY22: Significant increase in price-linked royalties (US$35/t) and the impact of reduced volumes (US$35/t) including our decision to cease sales of low-margin coal wash material FY23 key guidance assumptions: Higher volumes and a weaker Australian dollar to more than offset labour and energy cost inflation | | Australia Manganese ore (FOB) | | | | | | (US$/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 land | (1) South EU's owner ship 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) FY22 Operating unit cost guidance includes royalties (where appropriate) and the influence of exchange rates, and includes various assumptions for FY23, including: an adverse price of US$364.1, an average blended coal price of US$362.1 for Illawarra Metallurgical Coal, a manganese ore price of US$4.45/dmtu for 44 per cent manganese product, a nickel price of US$4.90/ton, a silver price of US$0.11/ton, a steel price of US$0.59/ton (gross of treatment and refining charges), a zinc price of US$0.48/ton (gross of treatment and refining charges), a copper price of US$0.07/ton (gross of treatment and refining charges), a molybdenum price of US$1.8/ton (gross of treatment and refining charges), a gold price of US$1.6/ton (gross of treatment and refining charges), a gold price of US$1.6/ton (gross of treatment and refining charges), a gold price of US$1.6/ton (gross of treatment and refining charges), a gold price of US$1.6/ton (gross of treatment and refining charges), a gold price of US$1.6/ton (gross of treatment and refining charges), a gold price of US$1.6/ton (gross of treatment and refining charges). (4) The demolition ID 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 5% per cent) of the increase. We expect our investment at Irawana 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$290 million at our Hermosa project in Arizona as we invest in infrastructure to support critical path dewatering and progress study work for the Taylor Deposit, ahead of a planned final investment decision expected in mid-calendar year 2023. Following the decision by the United States Government to invoke the Defense Production Act, supporting the production of critical metals including manganese, we are looking at different options to potentially accelerate the pre-feasibility study for the Clark Deposit. ### Capital expenditure guidance (South32's share)$^{(a)}$ | US$M | FY21 | FY22 | FY23e^{(a)} | | --- | --- | --- | --- | | Worsley Alumina | 51 | 47 | 45 | | Brazil Alumina | 25 | 51 | 50 | | Brazil Aluminium | - | 1 | 10 | | Hillside Aluminium | 17 | 20 | 30 | | Moorl Aluminium | 10 | 10 | 17 | | Carrington | 41 | 43 | 60 | | Cerro Matoso | 30 | 18 | 40 | | Irawana Metallurgical Coal | 151 | 177 | 263 | | South Africa Energy Coal | 23 | - | - | | **Safe and reliable capital expenditure (excluding equity accounted investments)** | **348** | **367** | **515** | | Worsley Alumina | 4 | 8 | 44 | | Brazil Alumina | - | - | 19 | | Cerro Matoso | 15 | 19 | 4 | | Irawana Metallurgical Coal | 37 | 12 | 3 | | South Africa Energy Coal | 53 | - | - | | Other operations | 15 | 19 | 15 | | **Improvement and life extension capital expenditure (excluding equity accounted investments)** | **124** | **58** | **85** | | Hermosa | 64 | 97 | 290 | | **Growth capital expenditure** | **64** | **97** | **290** | | **Total capital expenditure (excluding equity accounted investments)** | **536** | **522** | **890** | | **Total capital expenditure (including equity accounted investments)** | **606** | **684** | **1,345** | ### Equity accounted investments capital expenditure guidance (South32's share)$^{(a)}$ | US$M | FY21 | FY22 | FY23e^{(a)} | | --- | --- | --- | --- | | Sierra Gorda | - | 36 | 205 | | Australia Manganese | 53 | 56 | 50 | | South Africa Manganese | 15 | 14 | 15 | | **Safe and reliable capital expenditure (equity accounted investments)** | **68** | **106** | **270** | | Sierra Gorda | - | 45 | 43 | | Australia Manganese | 2 | 6 | 14 | | South Africa Manganese | - | 5 | 28 | | **Improvement and life extension capital expenditure (equity accounted investments)** | **2** | **56** | **85** | | **Total capital expenditure (equity accounted investments)** | **70** | **162** | **355** | ### Capitalised exploration guidance (South32's share)$^{(b)}$ | US$M | FY21 | FY22 | FY23e^{(a)} | | --- | --- | --- | --- | | Capitalised exploration (excluding equity accounted investments) | 29 | 33 | 55 | | Equity accounted investments capitalised exploration | 1 | 2 | 8 | | **Capitalised exploration (including equity accounted investments)** | **30** | **35** | **63** | (1) South32's current final share of operations is as per footnote (6) on page 54. (2) Total capital expenditure comprises Capital expenditure on residuals in expenditure. Capital expenditure comprises safe and reliable capital expenditure (Deferred shipping, Regulatory compliance, Non-reduction, and Euthanasia performance), Improvement (Decarbonisation), and Life extension capital expenditure, and Growth development of our current and future greenfields growth capital expenditure. (3) The description is refer to an estimate or forecast year. All guidance is subject to further potential impacts from COVID-19. SOUTH32 ANNUAL REPORT 2022 61 ### Financial and operational performance summary continued Other expenditure guidance Underlying ETR in FY23 is expected to reflect the composition of the corporate tax rates and earnings from the jurisdictions in which we operate, including the Australia Manganese and Sierra Gorda royalty related tax. All other expenditure guidance is provided in the table below. These items are on a proportional consolidation basis including our manganese and Sierra Gorda equity accounted investments. FY22 FY23e (1) Commentary Group and unallocated Underlying EBIT (excluding greenfield exploration and third party product and services EBIT) (US$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) 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 Greenfield exploration (US$M) 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 64 Directors’ report 68 Lead Team 72 Remuneration report 74 SOUTH32 ANNUAL REPORT 2022 63 ### Board of Directors | N | R S | | | --- | --- | --- | | Ms Karen Wood BEd, LLB (Hons), 66 | | Mr Graham Kerr BBus, FCPA, 51 | | Chair and Independent Non-Executive Director | | Chief Executive Officer | | Appointed: 1 November 2017; Chair: 12 April 2019 | | Appointed: October 2014 and as Managing Director | | Location: Australia | | on 21 January 2015 | Location: Australia Career summary: Ms Wood has worked in legal practice Career summary: Mr Kerr joined BHP in 1994 and held a wide and business. range of operational and commercial roles across the business, including Chief Financial Officer Stainless Steel Materials, Vice In 2001, Ms Wood joined the BHP Group and held several global President Finance Diamonds and Finance Director for the BHP executive leadership roles, including Group Company Secretary, Canadian Diamonds Company. Chief Governance Officer, Chief People Officer and President People and Public Affairs (Corporate Affairs). Before joining In 2004, Mr Kerr joined Iluka Resources Limited as General BHP she worked at Bonlac Foods Limited, where she spent five Manager Commercial. He returned to BHP in 2006, leading to his years as General Counsel and Company Secretary. Following appointment as President of Diamonds and Specialty Products her retirement in 2014, she continued as an adviser to BHP’s where he was accountable for the Ekati Diamond Mine in Canada, Board and CEO until 2015. She also chaired the BHP Foundation Richards Bay Minerals joint venture in South Africa, diamonds until 2019, overseeing grant provisions for not-for-profit exploration in Angola, the Corridor Sands Project in Mozambique organisations to deliver global programs in the areas of natural and the development of BHP’s potash portfolio in Canada. resource governance, human capability and social inclusion, and Mr Kerr was appointed BHP’s Chief Financial Officer in 2011, a role conserving and sustainably managing natural environments. which he held until 2015 when he left to lead South32 through its Other key positions Ms Wood has held include being a member of demerger from BHP and listing in three countries. the Takeovers Panel (Australia) from 2000 to 2012 and roles with External appointments: Director, CEOs for Gender Equity. the Australian Securities and Investments Commission (Business Consultative Panel) and the Australian Government’s Business Skills and experience: Mr Kerr’s strong track record in resource Regulatory Advisory Group. development, and global experience as a commercial and operational leader within the resource industry, means that External appointments: he brings deep mining and metals expertise and exceptional ASX listed: Ms Wood is currently a Non-Executive Director of financial acumen. His health and safety expertise, and passion Djerriwarrh Investments Limited (since July 2016). for promoting diversity and inclusion, are valued contributions to our Board as it oversees our commitment to elevate our safety Ms Wood is also a Director of the Melbourne Cricket Club performance and instil a culture where everyone feels safe and Foundation, the Robert Salzer Foundation and the Board of respected at work. Mr Kerr’s strong focus on a purpose-driven the State Library Victoria. She serves on the State Library and values-led future for South32 make him a trusted leader as Victoria Foundation Council, is an ambassador for the Australian we progress the next phase of our strategy. 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 Committee membership key: strategic risks and opportunities for a global mining and metals Chair appointment company. Her expertise in shaping culture (including through N Nomination and Governance Committee organisational and remuneration design), public policy, social R Remuneration Committee performance and stakeholder engagement make her a trusted adviser in these areas. RA Risk and Audit Committee S Sustainability Committee 64 GOVERNANCE N N R RARA R S | Mr Frank Cooper AO, BCom, FCA, FAICD, 66 | Mr Guy Lansdown BSc (Engineering (Civil)), | | --- | --- | | Independent Non-Executive Director | MSc (Engineering (Project Management)), 61 | | Appointed: 7 May 2015 | Independent Non-Executive Director | | Location: Australia | Appointed: 2 December 2019 | Location: Mexico Career summary: Mr Cooper qualified as a chartered accountant Career summary: Mr Lansdown completed postgraduate study in Australia, leading to a 40-year career in the finance and specialising in civil engineering and project management and in accounting profession. He has held a number of senior tax his early career worked as a project director for South African and finance roles, including Partner at Ernst & Young, Partner / engineering and construction company Group Five, and then Business Unit Leader, Tax Practice at PricewaterhouseCoopers as an associate with global consulting firm Knight Piesold in the and Managing Partner for Arthur Andersen in Perth (for just over United States. 10 years), during which time he specialised in the mining, energy In 1993, Mr Lansdown joined Newmont Mining Corporation, and utility sectors. where he held many senior positions over his 20 year tenure, Throughout his career, Mr Cooper has had extensive involvement including Senior Vice President of Safety, Project Development in community activities, including serving as Commissioner and and Technical Services, Executive Manager Boddington Australia, Chair of the West Australian Football Commission and member Operations Manager Minera Yanacocha Peru and Engineering of the State Health Research Advisory Council (Western Australia). and Development Director Australia. His role through 2012 was Executive Vice President Discovery and Development, where he In 2014 Mr Cooper was awarded an Officer of the Order of led Newmont’s exploration, technical services and major project Australia. He was also named West Australian of the Year in the development. Professions category in 2015. External appointments: Mr Lansdown currently provides External appointments: consulting services through his American company Project ASX listed: Mr Cooper is currently a Non-Executive Director of Excellence, Inc. He is also President and Director of two charities, Woodside Energy Group Limited (since February 2013) and Chair Un Futuro Mejor Inc and Fundación Lansdown A.C., which provide of its Audit and Risk Committee. opportunities for disadvantaged youth in Mexico to reach their full potential. Mr Cooper is also Commissioner and Chairman of the Insurance Commission of Western Australia, Pro Chancellor of the University Skills and experience: Mr Lansdown’s substantial tenure as of Western Australia and a Director of St John of God Australia an executive leader in the gold mining sector and his skills Limited and Wright Prospecting Pty Ltd. and experience in social performance, enhance our Board’s capability to monitor our safety and operational performance Skills and experience: Mr Cooper brings exceptional financial and evaluate our response to the key sustainability-related acumen and accounting expertise, a strong understanding of issues facing our business. His extensive experience in early and legal and regulatory compliance and substantial experience in late stage greenfield and brownfield project development and risk management oversight to our Board, all of which also make delivery contribute to our Board’s assessment of exploration and him a highly capable Risk and Audit Committee Chair. His listed development opportunities. In addition, his experience working company experience and expertise in capital management in the Americas gives him insight into strategic and regulatory and corporate development are highly valued by our Board as issues, which is an asset to our Board as we expand our presence it oversees the implementation of our strategy, as is his strong in those locations. focus on organisational philosophy, values and standards. SOUTH32 ANNUAL REPORT 2022 65 ### Board of Directors continued | | RA | S RA | N N | | --- | --- | --- | --- | | Dr Xiaoling Liu BEng (Extractive Metallurgy), PhD (Extractive | | | Dr Ntombifuthi (Futhi) Mtoba CA(SA), DCom (Honoris Causa), | | Metallurgy), FAusIMM, FTSE, 65 | | | BCompt (Hons), HDip Banking Law, BA (Econ)(Hons), BA (Arts), 67 | | Independent Non-Executive Director | | | Independent Non-Executive Director | | Appointed: 1 November 2017 | | | Appointed: 7 May 2015 | | Location: Australia | | | Location: South Africa | | Career summary: Dr Liu completed her undergraduate study | | | Career summary: Dr Mtoba qualified as a chartered accountant | | in Chongqing University in China and her PhD in Extractive | | | in South Africa and joined Deloitte and Touche in 1988, | | Metallurgy at Imperial College in UK, before joining the Rio Tinto | | | specialising in financial services. She was one of the first African | | Group as a senior research scientist in 1988. | | | Black women to be appointed Partner by one of the Big Four | accounting firms, and later was appointed Chairperson of Deloitte Over her 26-year career with Rio Tinto, Dr Liu held various roles Southern Africa. in smelting operations, including General Manager Operations at Bell Bay (Tasmania), leading to other senior operational and Dr Mtoba is President and founder of TEACH South Africa, which management roles, including Managing Director Technical recruits skilled teachers for underprivileged schools. She has held Services, where she led Rio Tinto’s global technical services unit. several board positions at organisations focused on economic Prior to her retirement, Dr Liu was President and Chief Executive development and community engagement, including the New Officer of Rio Tinto Minerals, with responsibility for integrated Partnership for Africa’s Development Business Foundation and operations of mining, processing, supply chain, marketing and the African Union Foundation. Dr Mtoba has also been President sales for its Borates business in the United States, Europe and of the Association for the Advancement of Black Accountants and Asia. Business Unity South Africa and chaired the University of Pretoria Council for over ten years. Dr Liu has served as Vice President of the Board of the Australian Aluminium Council, a Board Member of the California Chamber Other positions Dr Mtoba has held include being a member of of Commerce, a Director of Melbourne Business School and the International Monetary Fund Advisory Group of Sub-Saharan Chancellor of Queensland University of Technology. She has also Africa, the World Economic Forum Global Advisory Council, and served as a Non-Executive Director at Newcrest Mining Limited the United Nations Global Compact Board. She has received (September 2015 until November 2020) and Iluka Resources several awards for contributions to business and society, Limited. including Most Outstanding Leadership Women of the Year (Africa Economy Builders, 2018). External appointments: External appointments: Dr Mtoba is currently a Non-Executive ASX listed: Dr Liu is currently a Non-Executive Director of Incitec Director and Deputy Chair of the Public Investment Corporation Pivot Limited (since November 2019) and Chair of its Health, Limited and Chair of its Audit Committee; a Director of Discovery Safety, Environment and Community Committee. Bank Holdings Limited and Lead Independent Director and Audit Skills & experience: With her accomplished career as a global Committee Chair of Discovery Bank Limited and a Director of executive in the resources industry, Dr Liu brings to our Board Vumelana Advisory Fund and the International Women’s Forum expertise in mining and processing operations, the execution of (South Africa). major capital projects and commodity value chain management. Skills and experience: Dr Mtoba’s tenure as partner and a leader Her high financial acumen, expertise in health and safety and at one of Africa’s predominant financial professional services strong understanding of the key environmental impacts, risks firms, and the numerous roles she has held in local, regional and and opportunities relevant to our operations, make her a valued international organisations and forums, means that she provides contributor to the Committees on which she serves. Dr Liu’s our Board with considerable financial, economic and public policy knowledge and experience in technology and innovation, expertise and leadership. Dr Mtoba brings a strong focus on together with her technical background, is an asset to our Board culture and her expertise in social performance and community as it oversees our advancement towards a low-carbon future. 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 RS N N S | Mr Wayne Osborn Dip Elect Eng, MBA, FTSE, 70 | Mr Keith Rumble BSc, MSc (Geology), 68 | | --- | --- | | Independent Non-Executive Director | Independent Non-Executive Director | | Appointed: 7 May 2015 | Appointed: 27 February 2015 | | Location: Australia | Location: South Africa | Career summary: Mr Osborn worked as an engineer in the Career summary: Mr Rumble is a qualified geologist. He joined telecommunications and iron ore industries, before joining Alcoa Richards Bay Minerals (at that time, a joint venture between (Australia) in 1979. BHP and the Rio Tinto Group) in 1980, working in smelting and metallurgy, and held various management positions before Mr Osborn held several senior management positions with Alcoa becoming CEO in 1996. Prior to that appointment, Mr Rumble over the course of his career, including having accountability for spent just under three years with Rio Tinto’s iron and titanium its Asia-Pacific manufacturing operations in China, Japan, Korea business as Director of International Sales and Marketing and re- and Australia. In 2001 he was appointed Managing Director, joined the business in 2000 as President and CEO of Rio Tinto Iron leading an integrated business comprised of bauxite mining, and Titanium Inc. in Canada. alumina refining, coal mining, power generation and aluminium smelting until his retirement in 2008. In 2001, Mr Rumble joined Impala Platinum, where he held the role of CEO until 2006, after which he moved to junior miner SUN Since 2008, Mr Osborn has served as a Non-Executive Director Mining (part of the SUN Group), also as CEO. in the mining, energy and construction industries. Most recently, he was a Non-Executive Director of Wesfarmers Limited from Since his retirement as an executive in 2008, Mr Rumble has held March 2010 to October 2021. Non-Executive Director positions at the BHP Group and South African infrastructure and resources company, Aveng Limited. Other key roles Mr Osborn has held include Chairman of the Australian Institute of Marine Science, Chairman of the Western External appointments: Mr Rumble is currently a Director of Australia Branch of the Australia Business Arts Foundation Enzyme Technologies (Pty) Limited and Elite Wealth (Pty) Limited. and Vice President of the Chamber of Commerce and Industry, Skills and experience: With his substantial tenure as an Western Australia. He is also a recipient of the WA Business executive leader in the resources industry, Mr Rumble brings Leader Award (2007) and the Australian Institute of Company deep knowledge and experience in mining and smelting Directors Award for Excellence (2018). operations. His expertise in geological and geoscience matters External appointments: None. and strong understanding of the key environmental impacts, risks and opportunities relevant to our business, enhance our Board’s Skills and experience: Mr Osborn brings expertise in mining capability to oversee our sustainability commitments, risks and smelting operations, large-scale capital projects and and impacts. These skills, together with his health and safety commodity value chain management to our Board. His broad management expertise and proficiency in risk management, skills and experience in health and safety management and make him a highly capable Sustainability Committee Chair. 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. SOUTH32 ANNUAL REPORT 2022 67 ### Directors’ report | This report is presented by the Board of | Board and Committee meetings | Our Chair sets the agenda for each Board | | --- | --- | --- | | Directors of South32 Limited, together | and Director attendance | meeting, with the Chief Executive Officer | | with the Group’s Financial report, for the | There are nine regularly scheduled | (CEO) and the Company Secretary. The | | financial year ended 30 June 2022. | meetings of our Board each year. Six of | meetings typically include: | these are usually held face-to-face over The report is prepared in accordance with – Minutes of the previous meeting and three days and are held in one of our main the requirements of the Corporations Act, matters arising; geographic areas of operation to allow with the following information forming part – Report from our Chair; Directors to conduct site visits. Committee of the report: meetings are also held during this time. – Update on various governance matters; – Operating and financial review on the A further three meetings are convened – CEO’s report; inside front cover to page 62; each year to consider annual disclosures, – Finance report; including half and full year results, and are – Director biographical information on usually held virtually. Additional meetings – Commercial report; pages 64 to 67; are convened as required to address – Reports on major projects and strategic – Remuneration report on pages 74 to business critical issues.  matters; 102; During FY22, there were a total of 15 Board – Board Committee Chair reports; – Note 19(a) Financial risk management meetings. The additional meetings were – Continuous disclosure checkpoint; and objectives and policies on pages 140 to held to oversee the acquisition of a 45 per 144; – Closed sessions with Directors and cent interest in the Sierra Gorda copper – Note 20 Share capital on page 150; closed sessions with Non-Executive mine, the issuance of US$700 million of Directors only. | – Note 21 Auditor’s remuneration on page | senior unsecured notes in the United | | | --- | --- | --- | | 151; | States of America and to consider other | In between meetings, our Board receives | | – Note 23 Employee share ownership | business critical issues and continuous | regular reports from senior management | | plans on pages 152 to 155; | disclosure obligations. The FY22 Board | on matters, including (but not limited to): | program included a dedicated strategy day – Directors’ declaration on page 166; – Sustainability (including health and held in April 2022. – Auditor’s independence declaration on safety) performance; page 167; In an ongoing response to the COVID-19 – Financial and production performance; pandemic and related travel disruptions, – Resources and Reserves on pages 172 – Government relations and political our virtual format continued for the to 179; affairs; and majority of Board and Committee meetings – Shareholder information on pages 181 – Investor relations updates (including in FY22. Following the easing of travel and to 183; and ESG updates). social distancing restrictions in late FY22, – Corporate directory on the inside back our Board was able to meet physically in Further, our Board receives updates on cover. April and June 2022 and conducted site relevant issues such as cybersecurity visits to Worsley Alumina in Australia and risks, climate change, carbon emissions Directors and meetings Sierra Gorda in Chile, respectively. reduction targets including information At the date of this report, the Directors in In addition to the two site visits, during the on evolving regulation and policy office were: | | period of FY22 when it was not possible to | developments, shifting societal | | --- | --- | --- | | Ms Karen Wood | visit our sites due to COVID-19, our Board | expectations, sexual harassment in the | | Appointed 1 November 2017 | continued to stay connected with our | workplace, culture, inclusion and diversity, | | | operations by way of operational overviews | cultural heritage, community matters, | Mr Graham Kerr and briefing sessions conducted as part of business integrity and litigation. It also Appointed 21 January 2015 the Board programs. receives regular reports for discussion Mr Frank Cooper AO on operational, culture and leadership, To help it carry out its responsibilities, Appointed 7 May 2015 corporate governance and other business our Board has four standing Board matters, including market updates and Mr Guy Lansdown Committees. From time to time, the Board market research. Appointed 2 December 2019 creates other committees to address important matters and areas of focus for As part of their ongoing education and Dr Xiaoling Liu the business. For example, a committee training, during FY22 our Board received Appointed 1 November 2017 was established to oversee the Company’s external briefings on various matters acquisition of an interest in the Sierra including cybersecurity risk, climate risk Dr Ntombifuthi (Futhi) Mtoba Gorda copper mine. governance and disclosure matters, Appointed 7 May 2015 workplace sexual harassment and evolving Mr Wayne Osborn All Directors have a standing invitation to regulation and policy developments and Appointed 7 May 2015 attend all Committee meetings, with the shifting societal expectations in relation to consent of the relevant Committee Chair. these areas. Mr Keith Rumble In practice, all Directors generally attend all Appointed 27 February 2015 meetings. You can find information about our You will find the number of Board and Directors’ qualifications, experience, special Committee meetings held in FY22, as well responsibilities and other directorships on as the Directors who attended them, in pages 64 to 67. Table 1.1. 68 GOVERNANCE Table 1.1 Board and Committee Meeting Attendance in FY22 | | | | | | Nomination and | | | | | Remuneration | | | | | Risk and Audit | | | | | Sustainability | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Board | | | Governance Committee | | | | | | Committee | | | | | Committee | | | | | Committee | | | | | Director Eligible | (1) | Attended | (2) | Eligible | | (1) | Attended | (2) | Eligible | | (1) | Attended | (2) | Eligible | | (1) | Attended | (2) | Eligible | | (1) | Attended | (2) | K Wood 15 15 5 5 7 7 - 10 8 8 G Kerr (CEO) 15 15 - 5 - 7 - 10 - 8 F Cooper 15 15 5 5 7 7 10 10 - 8 X Liu 15 15 5 5 - 7 10 10 8 8 (3) (4) G Lansdown 15 14 5 5 6 7 10 10 8 8 N Mtoba 15 15 5 5 - 7 10 10 - 8 W Osborn 15 15 5 5 7 7 - 10 8 8 (4) K Rumble 15 14 5 5 7 7 - 10 8 8 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 Review of operations, likely Dendrobium Next Domain (DND) project and review of operations developments and expected During the year ended 30 June 2021, results Principal activities and significant the New South Wales Independent changes during the year A review of the Group’s FY22 operations Planning Commission (IPC) refused In FY22, the principal activities of the is set out in the Operating and financial the application for the DND project at Group were mining and metal production, review on the inside front cover to 62. Illawarra Metallurgical Coal (IMC). The from a portfolio of assets that included The Operating and financial review also decision by the IPC introduced uncertainty bauxite, alumina, aluminium, copper, silver, includes likely developments in the Group’s over the future of the DND project’s lead, zinc, nickel, metallurgical coal and operations in future financial years and value contribution to the IMC cash manganese. expected results. generating unit (CGU) recoverable amount assessment. The Group assessed the On 6 January 2022, the Group announced Dividends potential implications of the IPC decision its decision to participate in a restart of We paid the following dividends during FY22: and as a result recognised an impairment the Alumar aluminium smelter in Brazil, Total Payment of the IMC CGU of US$728 million during together with our joint venture partner Dividend dividend date the 2021 financial year. Alcoa Corporation. Final dividend of US 3.5 On 23 August 2022, the Group announced On 22 February 2022, the Group completed cents per share that it will not proceed with the its acquisition of a 45 per cent interest in (fully-franked) for the year ended 30 June US$163 7 October investment in the DND project following its the Sierra Gorda copper mine in Chile. | | 2021 | million | | 2021 | consideration of recently completed study | | --- | --- | --- | --- | --- | --- | | On 29 April 2022, the Group acquired an | Special dividend of US | | | | work and extensive analysis of alternatives | | additional 18.2 per cent shareholding and | 2.0 cents per share | | | | considered for the complex. With this | | related rights in the Mineração Rio do | (fully-franked) for the | | | | decision, the Group will focus on continuing | | Norte (MRN) bauxite mine in Brazil. The | year ended 30 June | US$93 | 7 October | | to optimise Dendrobium and the broader | | | 2021 | million | | 2021 | | | additional interest increased the Group’s | | | | | IMC complex to extend the mine life | | | Interim dividend of US | | | | within approved domains. In light of the | shareholding to 33 per cent. 8.7 cents per share impairment that was recognised during On 31 May 2022, the Group acquired an (fully-franked) for the the 2021 financial year, the decision not to additional 16.6 per cent shareholding half year ended US$404 proceed with the investment in the DND and related rights in Mozal Aluminium in 31 December 2021 million 7 April 2022 project has not resulted in an additional Mozambique. The acquisition increased the Matters since the end of the impairment charge and the carrying value Group’s shareholding to 63.7 per cent. financial year for the IMC complex remains appropriate There were no other significant changes in Non-core royalty sale as at 30 June 2022. the Group’s principal activities during the On 19 July 2022, the Group completed Capital management year. the sale of a package of four non-core On 25 August 2022, the Directors resolved base metal royalties to Anglo Pacific State of affairs to pay a fully-franked final dividend of Group Plc (Anglo Pacific) in exchange for There were no significant changes in the US 14.0 cents per share (US$648 million) consideration comprising both cash and Group’s state of affairs during the year, and a fully-franked special dividend of shares. The Group recognised a gain on the other than the restart of the Alumar US 3.0 cents per share (US$139 million) sale of US$192 million (US$134 million post aluminium smelter, the acquisition of the in respect of the 2022 financial year. The tax) in the 2023 financial year. Following Group’s interests in Sierra Gorda and the dividends will be paid on 13 October 2022. completion, the Group holds a 16.7 per cent additional interests acquired in MRN and The dividends have not been provided for interest in Anglo Pacific. | Mozal Aluminium, and as set out in the | in the consolidated financial statements | | --- | --- | | Operating and financial review on on the | and will be recognised in the 2023 financial | | inside front cover to 62. | year. | SOUTH32 ANNUAL REPORT 2022 69 ### Directors’ report continued | On 25 August 2022, the Group also | Company Secretary | Our Corporate Governance Statement | | --- | --- | --- | | announced an increase to the existing | Claire Tolcon | is available at www.south32.net/who- | | capital management program, announced | LLB, BComm, GCertCorpMgt, FGIA | we-are/risk-governance. It also contains | | in March 2017, of US$156 million to | | the information required under the UK | | a total of US$2.3 billion. This leaves | Claire Tolcon is our Manager Company | Financial Conduct Authority’s Disclosure | | US$250 million expected to be returned | Secretariat and Corporate Counsel. She | Guidance and Transparency Rules. | | by 1 September 2023. | was appointed Company Secretary on | | | | 30 October 2020. Before joining South32 in | Auditor | | No other matters or circumstances have | 2017, Claire held the role of General Counsel | | Our External Auditor has provided an arisen since the end of the financial year and Company Secretary for a number of independence declaration in accordance that have significantly affected, or may ASX listed entities, prior to which she was with the Corporations Act, which is set out significantly affect, the operations, results a partner of a corporate law firm in Perth. on page 167 and forms part of this report. of operations or state of affairs of the She holds a Bachelor of Laws and Bachelor Group in subsequent accounting periods. The External Auditor also provides of Commerce from Murdoch University and our Directors with an independent a Graduate Diploma of Applied Finance and Remuneration and share interests assurance conclusion. This relates to Investment from Kaplan. | Table 1.2 Directors’ Relevant Interests in | | certain sustainability information and | | --- | --- | --- | | South32 Limited Shares | Indemnities and insurance | is in accordance with the International | | | The South32 Limited Constitution requires | Standards on Assurance Engagements | Number of South32 Limited shares in which a relevant that we indemnify each Director and ISAE 3000 Assurance Engagements interest is held as at the date | | | Company Secretary (including employees | other than Audits or Reviews of Historical | | --- | --- | --- | --- | | Director | of this Directors’ Report | | | | | | appointed as directors of a Group | Financial Information and ISAE 3410 | K Wood 367,825 company) on a full indemnity basis and Assurance Engagements on Greenhouse (1) G Kerr (CEO) 9,854,524 to the extent permitted by law against Gas Statements. F Cooper 128,010 liability incurred by them in their capacity G Lansdown 80,000 A copy of the External Auditor’s assurance as an officer of any Group company. The report is included in the Sustainability X Liu 60,000 Directors and the Company Secretary Databook, available at www.south32.net N Mtoba 71,386 named in this report have the benefit W Osborn 174,104 of this indemnity (as do individuals who Non-audit services K Rumble 161,380 formerly held one of these positions). All non-audit services provided by our (1) At the date of this Directors’ Report, G Kerr’s total External Auditor are considered and interest includes 3,953,544 South32 Limited ordinary As permitted by our Constitution, shares and 5,900,980 rights over South32 Limited approved in accordance with the process South32 Limited has entered into Deeds shares held under the South32 Equity Incentive Plan. set out in our Provision of Non-Audit of Indemnity, Access and Insurance with Services Policy. Rights and options over South32 each of the Company’s Directors, Company Limited shares Secretary and the Chief Financial Officer No non-audit services were undertaken No rights or options over South32 Limited under which we agree to indemnify those by, and no amounts paid to, our External ordinary shares are held by any of our Non- persons on a full indemnity basis and to the Auditor during FY22. Refer to note 21 Executive Directors. extent permitted by law. to the financial statements (Auditor’s remuneration) on page 151. Our CEO and Managing Director, Graham We purchase Directors' and Officers' Kerr, holds rights over South32 Limited liability insurance which insures against Political donations and community shares, granted under the South32 Equity certain liabilities (subject to exclusions) in investment Incentive Plan. You can find more details respect of current and former Directors Our Code of Business Conduct sets out about this in the Remuneration report on and other Officers of the Group. Due our approach to political donations and page 100. to confidentiality obligations and community investment. undertakings of the insurance, we can’t The total number of rights over South32 disclose any further details about the In FY22, we made no political donations to Limited shares on issue as at 30 June premium or insurance. any political party, politician, political party 2022 is set out in note 23 to the financial official, elected official or candidate for statements (Employee share ownership During FY22 and as at the date of this public office in any country. On occasion, our plans) on pages 152 to 155. Directors’ report, no indemnity in favour of representatives attend political events that a current or former Director or Officer of charge an attendance fee where attendance South32 Limited does not have any options the Group has been called on. is approved beforehand in accordance with on issue. No options or rights have been our internal approval requirements. We granted since the end of FY22. Corporate Governance record the details of attendances and the Under ASX Listing Rule 4.10.3, As of the date of this report, the total relevant costs at a corporate level. ASX listed entities are required to number of rights over South32 Limited benchmark their corporate governance In FY22, we contributed US$31.1 million shares on issue is 42,614,372. The practices against the fourth edition for the purposes of supporting community Remuneration report contains details of of the ASX Corporate Governance programs that comprised direct investment, rights on issue. No shares have been issued Council’s Corporate Governance in-kind support and administrative costs. on vesting of rights during or since the end Principles and Recommendations (ASX For more information on our community of FY22. Recommendations). investment, please visit www.south32.net/ community-society/community-investment. South32 is compliant with all relevant ASX Recommendations. 70 GOVERNANCE | Proceedings on behalf of South32 | Responsibility statement | | --- | --- | | No proceedings have been brought | The Directors state that to the best of their | | or intervened in on our behalf, nor any | knowledge: | application made under section 237 of the a) The consolidated financial statements Corporations Act. and notes on pages 103 to 165 were Environmental performance prepared in accordance with applicable accounting standards, give a true Performance in relation to and fair view of the assets, liabilities, environmental regulation financial position and profit and loss We seek to be compliant with all applicable of the Group and the undertakings environmental laws and regulations included in the consolidation taken as a relevant to our operations. whole; and We classify environmental incidents b) The Directors’ report includes a based on actual and potential impact type fair review of the development as defined by our internal material risk and performance of the business management standard. In FY22, there were and the position of the Group and no environmental events that resulted in a the undertakings included in the major impact to the environment. consolidation taken as a whole, together Fines and prosecutions with a description of the principal risks In February 2022, South Africa Manganese and uncertainties they face. received a fine of ZAR1 million (US$65,000) This Directors’ report and the responsibility to rectify a legacy issue related to unlawful statement are made in accordance with a disposal of waste into Adams Pit and the resolution of the Board. 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 Karen Wood April 2022. Chair 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 Graham Kerr requirements. Chief Executive Officer and Managing In April 2022, Cerro Matoso received and Director paid a fine of CLP134 million (US$33,000) Date: 8 September 2022 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. SOUTH32 ANNUAL REPORT 2022 71 ### Lead Team | Graham Kerr | Katie Tovich | Jason Economidis | Noel Pillay | | --- | --- | --- | --- | | BBUS, FCPA, 51 | BCom, CA, GAICD, 52 | MBA (Executive), GAICD, 53 | NHDP Mech Eng, 54 | | Chief Executive Officer | Chief Financial Officer | Chief Operating Officer | Chief Operating Officer Africa | | and Managing Director | | Australia | and Colombia | Katie Tovich joined South32 | See page 64 for Graham Kerr’s | in 2015 and became our Chief | Jason Economidis became our | Noel Pillay became our Chief | | --- | --- | --- | --- | | qualifications and experience. | Financial Officer in May 2019. | Chief Operating Officer in July | Operating Officer in October | | | Prior to this role, Katie was Vice | 2020, assuming responsibility | 2021 and is responsible for | | | President Corporate Affairs | for Australia Manganese, | our operations in Africa and | | | and Investor Relations, as | Cannington, Illawarra | Colombia. | | | well as Head of Treasury. She | Metallurgical Coal and Worsley | | Prior to this role, Noel was is responsible for Financial Alumina. Prior to this role, Jason Vice President Operations at Reporting, Financial Analysis, was Vice President Operations Worsley Alumina where he was Treasury, Business Evaluation, at Illawarra Metallurgical Coal. responsible for the operation’s Tax, Investor Relations, Risk and Jason is an experienced mining safety, production and cost Group Assurance. | | executive having worked in the | performance. Before his time at | | --- | --- | --- | | Katie brings more than 25 | sector in Australia and overseas | Worsley Alumina, Noel was Vice | | years of global experience in | for more than 25 years. He | President Operations at Hillside | | the resources sector. Before | joined South32 from Orica, | Aluminium in South Africa. | | joining South32, she held | where he held the position of | | Before joining South32, Noel senior finance and marketing Vice President Coal and was worked for BHP from 1994 as roles at BHP in Australia and responsible for 25 mining a Maintenance Engineer at Asia, including Vice President operations across Queensland Hillside Aluminium and has Corporate Finance, Head of and New South Wales. held several leadership roles Finance Worsley Alumina Jason has held several other in Maintenance, Production, and Vice President Finance senior positions in the industry Business Improvement and Marketing – Carbon Steel including General Manager of Human Resources in South Materials. Earlier in her mining the Coppabella and Moorvale Africa and Australia. career, she held finance and Complex for Peabody Energy, marketing leadership positions Noel is a trained Mechanical Chief Operating Officer of at WMC Resources Limited in Engineer and holds a National Vale Coal Australia, General Australia and North America. Higher Diploma from the Manager of Goonyella-Riverside University of Johannesburg. Katie holds a Bachelor of and Caval Ridge, Vice President Commerce from the University Health, Safety, Environment and of Tasmania, is a member Community for BHP and Chief of Chartered Accountants Operating Officer of Discovery Australia and New Zealand and Metals, based in Botswana. is a graduate of the Australian Jason holds a Master of Institute of Company Directors. Business Administration (Executive) from the Australian Graduate School of Management and is a graduate of the Australian Institute of Company Directors. 72 GOVERNANCE | Vanessa Torres | Brendan Harris | Kelly O’Rourke | Simon Collins | | --- | --- | --- | --- | | BSc (Chemical), MEng, DEng, 52 | BSc, CPA, 50 | LLB, BCom, MAICD, 43 | BE (Mining), MBA, 49 | | Chief Technical Officer | Chief Human Resources and | Chief Legal and External Affairs | Chief Development Officer | | | Commercial Officer | Officer | | | Vanessa Torres became our | | | Simon Collins became our | | Chief Technical Officer in | Brendan Harris became our | Kelly O’Rourke was appointed | Chief Development Officer in | | July 2020. She is responsible | Chief Human Resources | to the role of Chief Legal and | October 2018. He is responsible | | for Technology, Innovation, | and Commercial Officer | External Affairs Officer in | for Greenfields Exploration, | | Business Optimisation, Risk | in November 2020 and is | July 2021 and is responsible | Corporate Development, Brazil | | Management, Capital Projects | responsible for our Human | for Legal, Company | Alumina, Brazil Aluminium, | | as well as Health, Safety, | Resources, Marketing and | Secretary, Business Integrity, | Sierra Gorda and the Hermosa | | Environment and Technical | Supply functions. Before his | Communications, Community, | project. He also represents | | Stewardship. | role was expanded, Brendan | Government and Sustainability | South32 on the Board of | | | was our Chief Commercial | Strategy. Prior to this, Kelly was | Directors of Ambler Metals LLC. | Vanessa joined South32 | | Officer between January and | our Chief External Affairs Officer, | | | --- | --- | --- | --- | | in August 2018 as Chief | | | Simon brings over 25 years’ | | | November 2020. | having been appointed to the | | | Technology Officer. Before this | | | experience in the resources | Lead Team in November 2020. | role, she was Vice President | Brendan joined South32 as | | industry in senior leadership | | --- | --- | --- | --- | | Operational Infrastructure for | our inaugural Chief Financial | Kelly joined South32 in 2016 | and business development | | BHP Western Australia Iron | Officer, looking after Financial | as Head of Corporate Affairs | roles. Before joining South32, he | | Ore. She has 30 years of global | Reporting, Management | and Investor Relations and | worked for BHP for more than | | mining experience across | Reporting, Treasury, Business | later became Vice President | a decade, providing leadership | | Australia, Canada, Brazil, Peru | Evaluation, Tax, Corporate | Corporate Affairs. She | to the business development | | and New Caledonia, and has | Affairs, Investor Relations, | previously worked at BHP for | teams in Australia, Belgium, | | held various senior roles at BHP | Risk and Assurance, and Brazil | nine years where she held | Singapore and the United | | and Vale in strategy, projects, | Alumina. Brendan played a | senior roles in Legal, Business | Kingdom. He began his career | | business development and | key role in the demerger from | Development, Mergers and | in mine operations initially in | | operations. | BHP in 2015 and South32’s | Acquisitions and the Office of | Australia and then South Africa. | | | public listing in three countries, | the Chief Executive. | | | Vanessa holds Doctorate and | | | Simon holds a Master of | in addition to developing Master degrees in Minerals Kelly has more than Business Administration from our capital management Engineering from the University 15 years’ experience in London Business School and framework. | of Sao Paulo, and a Bachelor | | the mining industry across | a Bachelor of Engineering | | --- | --- | --- | --- | | of Science from the Federal | Before joining South32, | legal, commercial, business | (Mining) from the University | | University of Minas Gerais, | Brendan was Head of Investor | development, mergers and | of New South Wales. | | Brazil. She was also a Visiting | Relations at BHP, based in | acquisitions, corporate affairs | | | Scholar at the University of | the United Kingdom and | and community roles, and has | | | British Columbia, Canada, | then Australia, where he was | worked in Australia, the United | | | where her research focused | the Vice President Investor | Kingdom, Asia, Europe, Africa | | | on the application of artificial | Relations Australasia. During | and the Americas. | | | intelligence to the mining | his career, he also held roles in | | | Kelly holds a Bachelor of Laws industry. investment banking, including (Distinction) from The University Executive Director Metals and of Western Australia and a Mining Research at Macquarie Bachelor of Commerce from Equities. Curtin University. Brendan holds a Bachelor From November 2021 to of Science in Geology and August 2022, Kelly was Geophysics from Flinders on parental leave. During University. this time accountability for External Affairs moved to the Chief Financial Officer and accountability for Legal moved to Chief Executive Officer. SOUTH32 ANNUAL REPORT 2022 73 Remuneration report # LETTER FROM OUR REMUNERATION COMMITTEE CHAIR ![img-2.jpeg](img-2.jpeg) 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 Mazal 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$1.28 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 30 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 Mierkes, 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 SOUTH32 ANNUAL REPORT 2022 75 ### Remuneration report continued FY22 at a glance (2) Record dividends in respect of FY22 FY22 Total Shareholder Return (1) Underlying EBIT up 282% on FY21 ## US$1,192M 60% ## US$3,967M (3) Total Shareholder Return (TSR) Diagram 1.1 – Four-year South32 TSR relative to comparator Diagram 1.2 – One-year South32 TSR relative to key indices groups (AUD) (AUD) 80% 65% 40% 40% 0% 15% -40% -80% -10% FY18 FY19 FY20 FY21 FY21 (1) This number has not been prepared in accordance with IFRS. (2) TSR calculation uses June 2021 average return at the start and June 2022 average return at the end of the measured period. (3) Rolling 22 day average TSR. The following table outlines historic business performance outcomes. Table 1.1 – Business performance Performance measures (1) FY22 FY21 FY20 FY19 FY18 (2) Underlying EBIT (US$M) 3,967 1,039 622 1,797 2,109 (2) Underlying earnings (US$M) 2,602 489 193 992 1,327 Closing net cash/(debt) (US$M) 538 406 298 504 2,041 (3) Movement in adjusted ROIC (percentage point) 0.4 0.7 0.0 (1.4) (6.8) (4) Closing share price on 30 June (A$) 3.94 2.93 2.04 3.18 3.61 Dividends/special dividends paid (US cents) 14.2 2.4 5.0 13.0 13.7 (5) Total Recordable Injury Frequency (per million hours worked) (unaudited) 5.3 4.3 4.2 4.5 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. 90% 120% | Total Shareholder Return (TSR) Total Shareholder Return (TSR) | | | | | | | --- | --- | --- | --- | --- | --- | | | 76 | | GOVERNANCE | | | | | | | | FY22 | FY22 | | | South32 ASX100 FTSE100 S&P500 | South32 Sector Index World Index | | | | ## 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$2.68, with a record US$1.38 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 Toesch 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. SOUTH32 ANNUAL REPORT 2022 77 ### 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) | | | | | Fixed | | | | Total realised | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Executive KMP | | | remuneration Other | | (1) | STI cash STI deferred LTI | (2)(3) | | pay | | G Kerr | | FY22 1,815 42 1,215 1,215 - 4,287 | | | | | | | | | Chief Executive Officer | | FY21 1,815 27 879 879 - 3,600 | | | | | | | | | K Tovich | | FY22 863 9 691 691 170 2,424 | | | | | | | | | Chief Financial Officer | | FY21 830 12 573 573 163 2,151 | | | | | | | | | | (4)(5) | FY22 417 27 398 - - 842 | | | | | | | | M Fraser | Chief Operating Officer Africa | | FY21 1,000 78 484 484 - 2,046 | | --- | --- | --- | | J Economidis | | FY22 780 7 482 482 245 1,996 | | Chief Operating Officer Australia | | FY21 713 64 273 137 145 1,332 | | | (6) | FY22 651 239 352 279 214 1,735 | N Pillay Chief Operating Officer Africa and Colombia 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 The Remuneration Committee approves reward arrangements for our Executive KMP (other than the CEO) Committee 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 The way Shareholders Performance Market and Strategy we work We align short-term and Our culture is grounded in Our Reward Framework Our reward outcomes Our reward is competitive long-term performance our values and is at the focuses executives and align to performance by and designed to attract measures to our purpose core of how we deliver our management on delivering providing a large part and retain talented and strategy. This includes purpose and strategy. superior total shareholder of executive pay 'at risk' executives. our efforts to: You’ll see it reflected in our returns. based on challenging We benchmark our reward values, the decisions we – Optimise our business financial and non-financial We do this through levels in consideration of take, the courage we show by working safely, measures. share ownership and LTI similar sized companies and the legacy we leave. minimising our impact, performance measures STI outcomes reflect in the ASX, as well as our consistently delivering Supporting this is a strong aligned to the shareholder performance over the global mining peer group. stable and predictable belief that culture can be experience. financial year, while performance, and actively shaped through a LTI outcomes reflect continually improving focus on what we We value feedback and performance over a four- our competitiveness; prioritise, what we regularly check-in with year period. – Unlock the full value measure, what we reward investors and proxy of our business and who we appoint. advisers. 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. SOUTH32 ANNUAL REPORT 2022 79 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 2015, 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) ![img-3.jpeg](img-3.jpeg) # 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 Safety, health, risk management Sustainability 25% 28.3% and community Adjusted to increase the weighting of the financial Production, cost and capital expenditure 25% 28.3% measures in the STI given the Financial inclusion of the strategic Adjusted return on invested capital 25% 28.3% measures in the LTI from FY22. Strategic priorities Key elements of the FY22 Business Plan 25% 15% X Considers factors that are not specifically Business Modifier +/- +/- contemplated in the Business Scorecard = South32 Business Outcome Reflects our performance over the financial year SOUTH32 ANNUAL REPORT 2022 81 ### Remuneration report continued Components of our reward for FY22 The majority of pay at risk reflects our commitment to pay for performance and deliver value to shareholders Attract and retain talented Our intention executives to lead South32 Reward business and individual Drive long-term performance performance in the financial year and ownership behaviours Component Fixed Remuneration Short-Term Incentive Long-Term Incentive | The why Fixed remuneration is set with | | STI focuses effort on our key priorities to | The LTI is directly linked to relative TSR and | | --- | --- | --- | --- | | | reference to the median of our | ensure success for South32 both in the | the critical strategic initiatives that are | | | peer groups, reflecting each | financial year and into the future. It | expected to both protect and enhance | | | Executive KMP’s | motivates Executive KMP to achieve | value in the long-term. | | | responsibilities, location, skills | challenging performance objectives. Our | | | | and experience. | STI reflects performance during the year | | and measures outcomes within management’s control. | The how Base salary and | | 50 per cent paid in | 50 per cent | Rights to receive South32 shares. | | --- | --- | --- | --- | --- | | | superannuation. | cash annually. | delivered in rights | 80 per cent of the LTI is subject to TSR | | | | | to South32 shares, | performance measured over a four-year | | | | | deferred for two | period, relative to two comparator groups. | (1) years . 20 per cent is assessed based on our performance against two strategic measures. Our approach We benchmark our fixed Quantum (% of fixed remuneration): Quantum (% of fixed remuneration): in FY22 remuneration and Target Target value Max. value The quantum for FY22 was determined as Remuneration against two key Executive KMP 120% 180% a percentage of fixed remuneration: peer groups that reflect our Face value Target value | profile as a Company and the | Business Scorecard: The Business | | | --- | --- | --- | | markets in which we operate. | Scorecard reflects a balance of financial | CEO 200% 120% | | Our peer groups are: | and non-financial measures that are a | Other KMP 133% 80% | priority for us in the financial year. – An ASX peer group based Performance measures: on companies with half The financial measures remove the impact ■ TSR relative to IHS Markit Global to double our market of commodity prices and foreign exchange Mining Index constituents (53.3%) capitalisation (excluding so that we reward for items management ■ TSR relative to MSCI World Index foreign domiciled entities can control. (26.7%) and real estate investment ■ Climate change strategic Performance measures: trusts); and measure (10%) – An international mining ■ Sustainability (28.3%) ■ Portfolio management strategic measure (10%) peer group of 18 companies ■ Financial: Production, cost and with a similar market capital expenditure (28.3%) Vesting scale: | capitalisation, commodity | | ■ Financial: Adjusted ROIC (28.3%) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | Vesting outcome | | (2) | | mix and/or global presence | | ■ Strategic priorities (15%) | | | | | | | | to South32 (see Our global | | | | | 0% 40% 100% | | | | | mining peer group below). | Business Modifier: As scorecard measures | | Global Mining | | | | | | | | | | | TSR <= 50th | | | TSR > 50th | TSR > 75th | Index do not always reflect all aspects of percentile percentile percentile Constituents* performance across a year, and to mitigate | | MSCI World | | TSR > Index | | --- | --- | --- | --- | | against any unintended reward outcomes, | | TSR < Index TSR = Index | | | | Index* | | + 23.9% | the Board has the discretion to apply a Vesting outcomes will be determined Strategic Business Modifier to the Business by the Board at the end of the Measures Scorecard outcome. The Business Modifier performance period. may be applied to Executive KMP on an *Vesting between 40% and 100% is on a straight-line basis individual or group basis, having regard to the perspectives of stakeholders There is no retesting if the performance including employees, shareholders condition is not met at the end of the and communities. performance period. 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 The global mining peer group that we use as one of our reference points for benchmarking fixed remuneration and total mining peer reward levels includes the following companies: group 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 103 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) ![img-4.jpeg](img-4.jpeg) (1) M Fraser caused being a member of Executive KMP on 30 November 2021. Figures are not pre-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 pre-rated for his time as a member of Executive KMP in FY22. Target Remuneration has been cancelled from 2AM to AB using an exchange rate of AB$ 2.4MILL 1.6. SOUTH32 ANNUAL REPORT 2022 83 ### Remuneration report continued FY22 Target Remuneration relative to peer groups Diagram 1.6 – CEO fixed remuneration vs. Peers (unaudited) South32 has operations and offices on six continents and competes for talent in a global pool. The adjacent diagrams illustrate the measured approach 2,000 adopted by South32 in positioning CEO fixed remuneration 1,815 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 1,000 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 0 CEO has been assessed as being comparable to the upper quartile of the ASX peer group, but below the global peer group median. Diagram 1.7 – CEO Target Remuneration vs. Peers As an additional reference, we have also included 20,000 supplementary peer groups reflecting companies on the London Stock Exchange (UK) and US stock exchanges (US) 15,000 that are half to double the market capitalisation of South32, being the markets in which we also compete for executive talent. 10,000 6,171 5,000 0 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) 1,815 Minimum 1,815 (all reward at risk is forfeited) 6,171 Target 1,815 1,089 1,089 2,178 (71% at risk) 8,713 Maximum 1,815 1,634 1,634 3,630 (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$1.815 million. Target outcomes would be achieved where the business meets the challenging STI performance hurdles (i.e., that extend well beyond business-as-usual activities), resulting in STI being paid at target levels (67 per cent of maximum opportunity, or 120 per cent of fixed remuneration, with half deferred into shares) and 60 per cent of the rights granted under the LTI vesting. To deliver a Maximum outcome for the STI (i.e. 180 per cent of fixed remuneration, with half deferred into shares), South32 would need to achieve the robust stretch targets for every metric in the Business Scorecard. For the LTI to vest in full over the four-year performance period: 3,000 th – The South32 TSR would need to exceed the TSR of the company at the 75 percentile in the global mining constituent group; – The South32 TSR would need to exceed the MSCI World Index by more than 23.9 per cent; and – The Board would need to assess performance against both strategic measures as outstanding. South32 Deferred STI and LTI in the Target and Maximum scenarios do not incorporate future share price movements. A$’000 A$’000 South32 84 GOVERNANCE ASX Peers Global Peers UK Peers US Peers ASX Peers Global Peers UK Peers US Peers 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$780,000 on being appointed as Chief Operating Officer Australia on a permanent basis from 1 July 2021. Noel became a member of Executive KMP on 1 December 2021. (1) Table 1.3 – Fixed remuneration for Executive KMP in FY22 | | | FY21 fixed | | | FY22 fixed | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | remuneration | | | remuneration | | | Increase | | | Executive KMP | | | (A$) | | | (A$) | | % | G Kerr 1,815,000 1,815,000 0 K Tovich 830,000 870,000 4.8 M Fraser 1,000,000 1,000,000 0 J Economidis 712,500 780,000 9.5 (2) N Pillay - 694,453 - (1) Fixed remuneration reflects a full year in the KMP role. (2) Fixed remuneration for N Pillay has been converted to A$ using an exchange rate of A$1:ZAR11.13. SOUTH32 ANNUAL REPORT 2022 85 ### Remuneration report continued Short-Term Incentive for FY22 Determining STI awards Diagram 1.9 – Determination of STI awards South32 Individual Overall Business Outcome Outcome STI Outcome ### x ### x = | | 1A 1B | | | | 2 | | 3 | | --- | --- | --- | --- | --- | --- | --- | --- | | BUSINESS | | BUSINESS | INDIVIDUAL PERFORMANCE | | | Max 180% | | | SCORECARD | | MODIFIER | | and BEHAVIOURS | | Target 120% | | (of fixed remuneration) 0%-150% Discretion +/- (0%-150%) Target 10 0% 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 Diagram 1.10 – CEO STI outcome vs. Underlying earnings 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 2,500 74% outcomes. 75% 64% However, the Board has designed the STI, including the use 2,000 58% 54% of the Business Modifier and individual outcomes, so that executives are rewarded for delivering strong performance 50% 42% 1,500 across areas within their control throughout the cycle, taking into account overall business performance and shareholder 1,000 experience. 25% 500 Diagram 1.10 demonstrates the disciplined approach applied by the Board over the past five years. 0% - FY18 FY19 FY20 FY21 FY22 100% 3,000 US$M % of maximum 86 GOVERNANCE South32 Underlying earnings US$M STI % of maximum 1A FY22 Business Scorecard Table 1.4 – FY22 Business Scorecard outcomes Scorecard measure Target Performance Outcome Zero Target Maximum Sustainability 28.3% 34.7% | Safety: | | Fair | | | --- | --- | --- | --- | | Achieve a 20 per cent reduction in TRIF compared to the | | TRIF decreased by 12 per cent to 5.3 per million hours worked compared to | | | | (1) | | (1) | | adjusted FY21 baseline | . Complete the FY22 safety | the adjusted FY21 baseline | . The FY22 safety improvement milestones were | | improvement program milestones. | | 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 Significant event investigation targets were achieved. completed and signed off within the allocated timeframe. The significant hazard frequency and significant event actions outcomes were Achieve targets for significant hazard frequency and ahead of target. significant event actions. Health: Excellent Achieve a 20 per cent reduction in potential material exposures Potential material health exposures reduced by 34 per cent compared to against the FY21 baseline and in accordance with our internal FY21. health standard. Develop and implement a project pipeline to A project pipeline was developed to reduce potential material exposures by continue to reduce potential material exposures in accordance the end of FY24. with our internal health standard. Assign risk and control All material health risks were assigned risk and control owners. owners to all material health risks. Community: Excellent Implement community investment plans on time and on FY22 community investment was delivered to plan with an increase of 40 per (2) | budget. | cent from FY21 to US$31.1M | . | | --- | --- | --- | | Update our community and social performance standard, align | Our internal community standard was updated and enhanced to become our | | | this with the ICMM performance standards and integrate the | internal social performance standard. | | standard into all phases of the project lifecycle. Cultural heritage reviews for all our operating regions outside Australia were Complete global reviews for cultural heritage in all our completed to plan. Our Approach to Indigenous, Traditional and Tribal Peoples operating regions outside Australia. Finalise our Approach to Engagement was substantively completed. Indigenous, Traditional and Tribal Peoples Engagement. The community investment impact measurement framework was applied to Apply the community investment impact measurement all strategic investments with 97 per cent of projects measuring outcomes framework to all strategic community investments and ensure achieving their targets. that 80 per cent of projects that are measuring outcomes reach their FY22 outcome targets. Risk Management: Good Implement material risk registers and control management Material risk registers were implemented for all functions and major projects. plans for all functions and major projects, and second line Second line stewardship processes were implemented over all technical and stewardship processes over technical and health, safety and health, safety and environment material risks. environment material risks. Document performance 91 per cent of performance requirements for critical controls were requirements in our risk management system for 80 per cent documented in our risk management system. of critical controls. (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. SOUTH32 ANNUAL REPORT 2022 87 Remuneration report continued | Scorecard measure | Target | Performance | Outcome | Zero | Target | Maximum | | --- | --- | --- | --- | --- | --- | --- | | Financial: Production, cost and capital expenditure | 28.3% | | 37.0% | | | | | Production^{(1)}: Deliver 97 – 102 per cent of revenue equivalent production. | Good Revenue equivalent production was 98.4 per cent. | | | | | | | Cost^{(1)}: 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. | Fair FY22 adjusted cost was above budget by US$37M. Delivered US$69M in functional cost savings. | | | | | | | Capital expenditure^{(1)}: 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^{(1)}. Deliver major capital projects spend (adjusted for foreign exchange) that is within five per cent of budget and schedule. | Fair Normalised sustaining capital expenditure was 94 per cent of budget. Break-in projects^{(1)} were at 13 per cent. Major capital projects expenditure was 60 per cent of budget. | | | | | | | Financial: Adjusted ROIC | 28.3% | | 19.8% | | | | | Adjusted ROIC: Achieve budget FY22 Adjusted ROIC, consistent with our cost, production and capital expenditure targets. | Fair Adjusted ROIC was 6.6 per cent versus the budget of 6.9 per cent. | | | | | | | Strategic priorities | 15.0% | | 18.1% | | | | | Hermosa project: 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. | Good 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: Achieve 80 per cent of the agreed initiative milestones for the Next Generation Mine Innovation Mission and Hermosa Technology Development Program. | Good 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: Achieve FY22 targets and deliver all elements of the Group Inclusion and Diversity Action Plan. | Good 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. | | | | | | | Employee engagement: Achieve target employee engagement scores. | | | | | | | | Subtotal | Target = 100% Max = 150% | | 99.6% | | | | (1) Excludes non-operated entities. (2) Capital projects with expenditure above US$500,000 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) Business Modifier for Business Modifier applied in previous years FY22 FY21 FY20 FY19 FY18 CEO -20% -20% -30% -15% -20% (1) COO Africa -20% -30% -15% No Business -10% Modifier applied -10% (2) Other Executive KMP -5% -15% -5% -5% | One fatality in | One fatality in | One fatality in South | | One fatality in South | | --- | --- | --- | --- | --- | | South Africa | South Africa | Africa and a decline in | | Africa and the impact | | | | earnings and share | | of the Appin mine | | | | | price | 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. SOUTH32 ANNUAL REPORT 2022 89 ### 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 | | | | Overall STI | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Scorecard | | Business | Individual | outcome % of | | | Total | | Deferred | | | | | outcome % | Modifier +/- % | | outcome % | | target | STI awarded Cash | | | rights Awarded Forfeited | | | | Executive KMP (1A) (1B) (2) 1A x (1+1B) x (2) (A$’000) (A$’000) | | | | | | | | | (1) | (A$’000) | (1) | (%) (%) | G Kerr 99.6 -20 140 111.6 2,430 1,215 1,215 74 26 K Tovich 99.6 -5 140 132.5 1,382 691 691 88 12 (2) M Fraser 99.6 -20 100 79.7 398 398 - 53 47 J Economidis 99.6 -10 115 103.1 964 482 482 69 31 (3) N Pillay 99.6 -10 100 89.6 434 217 217 60 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 100% vesting 80% 40% 40% vesting 0% -40% 0% vesting TSR = index TSR > index by 23.9% -80% FY18 FY19 FY20 FY21 Table 1.7 – South32 FY19 LTI award vesting outcome | | | | | | | Vesting | Index | | Weighted | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | TSR performance | | (1)(2) | | outcome | weighting | vesting outcome | | | | Index | South32 | Required for | | Achieved | | | | | | | (A) | (B) | 100% vesting | | (B-A) (C) (D) (C x D) | | | | | | Sector Index 88% | | | Index+23.9% (51%) 0% 2/3 0% | | | | | | | 37% World Index 44% Index+23.9% (7%) 0% 1/3 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. 120% Total Shareholder Return (TSR) SOUTH32 ANNUAL REPORT 2022 91 FY22 South32 Sector Index World Index 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% 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% 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 ![img-5.jpeg](img-5.jpeg) Diagram 1.14 – Vesting scale ![img-6.jpeg](img-6.jpeg) Table 1.8 – South32 FY20 Transitional LTI award vesting outcome | | TSR performance^{(1)} | | | | Vesting outcome | Index weighting | Weighted vesting outcome | | --- | --- | --- | --- | --- | --- | --- | --- | | | Index (A) | South32 (B) | Required for 100% vesting | Achieved (B-A) | (C) | (D) | (C + D) | | Sector Index | 79% | 52% | Index=17% | (27)% | 0% | 2/3 | 0% | | World Index | 29% | | Index=17% | 23% | 100% | 1/3 | 33% | | | | | | | | | 33% | (1) TSR calculation was 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 Value of | | | | | | Number of | Value at | | Value lapsed/ | | | share price | | | Value at | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Number of | Number of | rights lapsed/ | | grant | (1) | | forfeited | (2) | movement | | (3) | vesting | (4) | | Executive KMP Award | rights granted | | rights vested | | forfeited | (A$’000) | | | (A$’000) | | | (A$’000) | | (A$’000) | | G Kerr FY19 LTI 1,450,819 - 1,450,819 5,310 5,310 - - FY19 MSP Performance 139,314 - 139,314 510 510 - - K Tovich FY20 Transitional LTI 129,283 43,094 86,189 415 277 32 170 M Fraser FY19 LTI 674,863 - 674,863 2,470 2,470 - - FY19 MSP Performance 123,704 - 123,704 453 453 - - J Economidis FY20 MSP Retention 62,305 62,305 - 200 - 45 245 FY19 MSP Performance 116,120 - 116,120 425 425 - - N Pillay FY20 MSP Retention 54,283 54,283 - 174 - 40 214 (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$3.94. LTI granted in FY22 FY22 LTI Plan Each year we grant performance rights to our Executive KMP. Our FY22 LTI Plan awards, which were granted in December 2021, have a four-year performance period and are subject to performance hurdles (outlined on page 82). Shareholders approved, under ASX Listing Rule 10.14, the grant of rights for the CEO at the AGM on 28 October 2021. FY22 Transitional awards Participants in the MSP receive a portion of their LTI as retention rights that have a three-year service condition. As all Lead Team LTI awards have a four-year performance period, the Board may determine that a new Lead Team member appointed from within South32 should receive a Transitional LTI award to bridge the gap between the two plans. In FY22, the Board approved one-off Transitional LTI awards for Jason and Noel, following their appointment to the Lead Team to address the potential shortfall in vesting in 2024. These awards are performance based and have the same TSR performance hurdles as the FY22 LTI, but are measured over a three-year period. More information on these awards is provided on page 101. Table 1.10 – FY22 LTI grants Reward determination (1) Grant (December | | | Face value | | Target value | | (2) | | | | | 2021): | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | (% of fixed | Face value | | (% of fixed | | Target value | | Number of rights | | | | Anticipated | | Executive KMP Award | remuneration) | | (A$’000) | remuneration) | | | | (A$’000) | | granted | | (3) | vesting date | G Kerr FY22 LTI 200 3,630 120 2,178 1 , 267,015 August 2025 K Tovich F Y22 LTI 133 1,157 80 696 403,874 August 2025 FY22 LTI 133 1,037 80 624 362,094 August 2025 J Economidis FY22 Transitional LTI 37.5 293 20 156 102,094 August 2024 FY22 LTI 133 945 80 569 329,962 August 2025 (4) N Pillay FY22 Transitional LTI 37.5 267 20 142 93,034 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. SOUTH32 ANNUAL REPORT 2022 93 ### 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 FY22 progress against measure Climate Change (1) We have announced plans to reduce our operational greenhouse In FY22 , we made strong progress in this critically important area gas emissions (Scope 1 and 2) by 50 per cent between FY21 and with: 2035, by implementing our decarbonisation framework, which – Completion of the pre-feasibility studies for mud-washing and coal includes: to gas conversion projects at Worsley Alumina; – The advancement of conceptual projects through our capital – Completion of a pilot plant scale CSIRO VAMMIT (Ventilation Air investment tollgates, and the successful commissioning of Methane Mitigation Trial) at Illawarra Metallurgical Coal, and by identified emissions reduction projects; successfully securing a A$15M grant from the NSW Government to – The ongoing assessment of new technologies and alternative progress to a commercial scale trial of the technology; energy sources; and – Completion of a feasibility study for the AP3XLE (energy efficiency) – Continued participation and direct investment in research and project at Hillside Aluminium and commencement of the execution development partnerships. phase; Consistent with our purpose, we will work to provide a just transition – Commencement of a pre-feasibility study to assess the potential towards net zero in a way that supports our people, local for low-carbon energy sources at Hillside Aluminium; and communities and other stakeholders. – Investment in two new initiatives to support development of new technologies – BluVein and Long Duration Energy Storage Council. Portfolio Management (2) We are planning to further reshape our portfolio and increase our In FY22 , we made significant progress in this transformative area exposure to the metals critical to a low-carbon future by: with: – Building a high-quality portfolio of greenfields and brownfields – The restart of the Brazil Aluminium smelter, which was exploration and development options; underpinned by the establishment of long-term, renewable power – Optimising our existing portfolio by responsibly transferring contracts; ownership of non-core operations or transitioning them to closure; – The acquisition of a further 18.2 per cent stake in the Mineracao – Developing or acquiring operations which are cash generative Rio do Norte (MRN) Joint Venture (to 33 per cent), optimising our through the cycle, improving the overall quality of our business; position in the Brazilian aluminium value chain; and – The acquisition of a further 16.6 per cent interest in Mozal – Maintaining discipline by adhering to our proven capital Aluminium, further increasing our exposure to hydro-electric management framework. 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 We deliver deferred STI and LTI equity awards (including Transitional Performance and MSP awards) in the form of (1) share rights. These are rights to receive fully paid ordinary shares in South32 Limited (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. Dividend and Rights carry no entitlement to voting, dividends or dividend equivalent payments. voting rights Cessation of Unless our Board determines otherwise: employment – 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. Where awards are pro-rated, the remaining portion lapses. Change of control 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. Malus and Our Board can reduce or clawback all vested and unvested STI and LTI awards in certain circumstances to ensure clawback 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. Rights to participate A participant cannot take part in new issues of securities in relation to their unvested rights. However, the relevant in new issues plan rules include specific provisions dealing with rights issues, bonus issues and corporate actions, and other capital reconstructions. (1) References in this Remuneration report to ‘South32 shares’ are references to fully paid ordinary shares in South32 Limited. SOUTH32 ANNUAL REPORT 2022 95 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$3.9M per annum (fee pool). We will always seek shareholder approval before making any changes to this pool. The table below outlines the fee levels for FY22. Table 1.12 – FY22 Board fees | Fee | Description | FY22 fee (A$ per annum) | Increase % | | --- | --- | --- | --- | | Board fees | Board of Directors | | | | | Chair of the Board | $78,000 | 0 | | | Other Non-Executive Directors | 189,250 | 0 | | Committee fees | Risk and Audit, Remuneration, and Sustainability Committees | | | | | Committee Chair | 46,000 | 0 | | | Members | 23,000 | 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$7,8M) 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 | | Short-term benefits | | | Non-employment benefits | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Board & Committee fees | Non-monetary benefits^{(1)} | Other cash allowances & benefits^{(2)} | Superannuation | Total | | K Wood | Full year | FY22 | 554 | - | 10 | 24 | 588 | | | | FY21 | 556 | - | - | 22 | 578 | | F Cooper AO | Full year | FY22 | 235 | - | 10 | 24 | 269 | | | | FY21 | 237 | - | - | 22 | 299 | | G Lansdown | Full year | FY22 | 256 | 1 | 25 | 1 | 282 | | | | FY21 | 235 | 2 | - | - | 237 | | X Liu | Full year | FY22 | 212 | - | 10 | 24 | 246 | | | | FY21 | 214 | - | - | 22 | 236 | | N Mtoba | Full year | FY22 | 212 | - | 20 | 1 | 233 | | | | FY21 | 212 | 2 | - | - | 214 | | W Osborn | Full year | FY22 | 235 | - | 10 | 24 | 269 | | | | FY21 | 237 | - | - | 22 | 299 | | K Rumble^{(3)} | Full year | FY22 | 258 | 2 | 20 | 1 | 281 | | | | FY21 | 305 | 2 | - | - | 307 | | Total | | FY22 | 1,962 | 3 | 105 | 99 | 2,169 | | | | FY21 | 1,996 | 6 | - | 88 | 2,090 | (1) Includes assistance with tax return preparation (2) Includes travel allowances paid in FY22 (3) FY22 Board and Committee fees for K Rumble include 269 589,780 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$1.2MILL$5 SOUTH32 ANNUAL REPORT 2022 97 ### Remuneration report continued Looking forward to FY23 Following the enhancements made in FY22, no major changes are proposed for the Reward Framework for FY23. The Board has confidence in the integrity of the Reward Framework, the core elements of which have remained unchanged since demerger, and believes it incorporates the necessary flexibility to reward our Executive KMP for performance that is aligned with the interests of stakeholders. Fixed remuneration To reflect the market movement in fixed remuneration and the pressure for talent in the industry, the Board approved increases to the fixed remuneration of Executive KMP that are aligned with those applied generally for employees in the country in which the Executive KMP are located, (as outlined in Table 1.14). This is the first increase in fixed remuneration for the CEO since FY20. Table 1.14 – Fixed remuneration for Executive KMP in FY23, effective 1 September 2022. | | FY22 fixed | | FY23 fixed | | | --- | --- | --- | --- | --- | | | remuneration | | remuneration | | | Executive KMP | | (A$) | | (A$) Increase % | G Kerr 1,815,000 1,906,000 5.0 K Tovich 870,000 914,000 5.1 J Economidis 780,000 819,000 5.0 (1) N Pillay 694,453 736,160 6.0 (1) Fixed remuneration for N Pillay has been converted to A$ 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 Measures Performance metrics FY23 weighting Sustainability Safety, health, risk management, water performance and community 28.3% Production, cost and capital expenditure 28.3% Financial Adjusted return on invested capital 28.3% Strategic priorities Key elements of the FY23 Business Plan 15% 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$) Increase % Board of Directors Board Fees Chair of the Board 578,000 595,250 3.0 Other Non-Executive Directors 189,250 195,000 3.0 Risk and Audit, Remuneration, and Sustainability Committees Committee Fees Committee Chair 46,000 46,000 - Members 23,000 23,000 - There will be no change to Committee fees or the travel allowance for FY23. 98 GOVERNANCE Statutory disclosures Statutory remuneration table for Executive KMP In the following table, we have set out the statutory disclosures required under the Corporations Act and in accordance with the Australian Accounting Standards. The amounts shown reflect the remuneration for each Executive KMP that relates to their service in FY22. Table 1.16 – Statutory remuneration of Executive KMP in FY22 (A$’000) Post Other Percentage | | employment | | Termination | | long-term | | Share based | | | Total | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | (3) | | (4) | | | of total | | Short-term benefits | | benefits | | benefits | benefits | | payments | | remuneration | | | remuneration | | | | Non- | | | which is | | --- | --- | --- | --- | --- | --- | --- | | Cash | | monetary | | | performance | | | bonus | (1) | benefits | | (2) Superannuation LTI STI | | testedExecutive KMP Salary | FY22 1,640 1,215 42 25 - 168 2,500 852 6,442 71% G Kerr FY21 1,765 879 27 23 - 165 2,746 798 6,403 69% FY22 768 691 9 28 - 79 698 478 2,751 68% K Tovich FY21 755 573 12 25 - 74 618 324 2,381 64% FY22 386 398 27 - 590 40 480 512 2,433 57% (5) M Fraser FY21 905 484 78 21 - 92 1,296 430 3,306 67% FY22 726 482 7 40 - 71 637 185 2,148 61% J Economidis FY21 624 273 46 88 - 46 425 43 1,545 48% FY22 523 217 101 - - 47 285 56 1,229 45% (6) N Pillay FY21 - - - - - - - - - - FY22 4,043 3,003 186 93 590 405 4,600 2,083 15,003 Total FY21 4,049 2,209 163 157 - 377 5,085 1,595 13,635 (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. SOUTH32 ANNUAL REPORT 2022 99 ### 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 | | | | Opening | | | | | | | | | | Closing | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | balance as at | | Grant | Granted in | | | | | Forfeited or other | | balance as at | | Anticipated | | Award | (1)(2) | 1 July 2021 | | date | | FY22 | (3) Vested in FY22 | | | change in FY22 | | 30 June 2022 | | vesting date | | Executive KMP Number Number Number | | | | | | | | (4) | % (5) | Number % | (5) | | Number | | G Kerr 8,502,426 1,509,175 352,097 15 2,026,717 85 7,632 ,787 FY21 Deferred STI (S) - 06-Dec-21 242,160 - - - - 242,160 Aug-23 FY22 LTI (P) - 06-Dec-21 1 , 267,015 - - - - 1,267,015 Aug-25 FY20 Deferred STI (S) 280,988 04-Dec-20 - - - - - 280,988 Aug-22 FY21 LTI (P) 2,695,544 04-Dec-20 - - - - - 2,695,544 Aug-24 FY19 Deferred STI (S) 352,097 06-Dec-19 - 352,097 100 - - - Aug-21 FY20 LTI (P) 1,696,261 06-Dec-19 - - - - - 1,696,261 Aug-23 FY19 LTI (P) 1,450,819 07-Dec-18 - - - - - 1,450,819 Aug-22 FY18 LTI (P) 2,026,717 13-Dec-17 - - - 2,026,717 100 - Aug-21 K Tovich 2,036,097 561,678 83,243 31 189,312 69 2,325,220 FY21 Deferred STI (S) - 06-Dec-21 157,804 - - - - 157,804 Aug-23 FY22 LTI (P) - 06-Dec-21 403,874 - - - - 403,874 Aug-25 FY20 Deferred STI (S) 156,030 04-Dec-20 - - - - - 156,030 Aug-22 FY21 LTI (P) 821,782 04-Dec-20 - - - - - 821,782 Aug-24 FY19 Deferred STI (S) 27,518 06-Dec-19 - 27, 518 100 - - - Aug-21 FY20 LTI (P) 517,133 06-Dec-19 - - - - - 517,133 Aug-23 FY20 Transitional LTI (P) 129,283 06 -Dec-19 - - - - - 129,283 Aug-22 FY19 MSP Retention (S) 55,725 07-Dec-18 - 55,725 100 - - - Aug-21 FY19 MSP Performance (P) 139,314 07-Dec-18 - - - - - 139,314 Aug-22 FY18 MSP Performance (P) 189,312 13-Nov-17 - - - 189,312 100 Aug-21 M Fraser 3,952,412 - 335,538 14 2,129,903 86 1,486,971 FY20 Deferred STI (S) 154,814 04-Dec-20 - 154,814 100 - - - Nov-21 FY21 LTI (P) 1,237,623 04-Dec-20 - - - 798,822 65 438,801 Aug-24 FY19 Deferred STI (S) 180,724 06-Dec-19 - 180,724 100 - - - Aug-21 FY20 LTI (P) 778,816 06-Dec-19 - - - 307, 5 82 39 471,234 Aug-23 FY19 LTI (P) 674,863 07-Dec-18 - - - 97,927 15 576,936 Aug-22 FY18 LTI (P) 925,572 13-Dec-17 - - - 925,572 100 - Aug-21 J Economidis 1,058,467 501,816 49,481 40 73,156 60 1,4 37,646 FY21 Deferred STI (S) - 06-Dec-21 37,628 - - - 37,62 8 Aug-23 FY22 LTI (P) - 06-Dec-21 362,094 - - - 362,094 Aug-25 FY22 Transitional LTI (P) - 06-Dec-21 102,094 - - 102,094 Aug-24 FY21 MSP Retention (S) 99,009 04-Dec-20 - - - - - 99,009 Aug-23 FY21 MSP Performance (P) 495,049 04-Dec-20 - - - - - 495,049 Aug-24 FY20 MSP Retention (S) 62,305 06-Dec-19 - - - - - 62,305 Aug-22 FY20 MSP Performance (P) 155,763 06-Dec-19 - - - - - 155,763 Aug-23 FY19 MSP Retention (S) 49,481 07-Dec-18 - 49,481 100 - - - Aug-21 FY19 MSP Performance (P) 123,704 07-Dec-18 - - - - - 123,704 Aug-22 FY18 MSP Performance (P) 73,156 07-May-18 - - - 73,156 100 - Aug-21 (6) N Pillay 608,028 422,996 - - - - 1,031,024 FY22 LTI (P) 06-Dec-21 329,962 - - - - 329,962 Aug-25 FY22 Transitional LTI (P) 06-Dec-21 93,034 - - - - 93,034 Aug-24 FY21 MSP Retention (S) 86,262 04-Dec-20 - - - - - 86,262 Aug-23 FY21 MSP Performance (P) 215,655 04-Dec-20 - - - - - 215,655 Aug-24 FY20 MSP Retention (S) 54,283 06-Dec-19 - - - - - 54,283 Aug-22 FY20 MSP Performance (P) 135,708 06-Dec-19 - - - - - 135,708 Aug-23 FY19 MSP Performance (P) 116,120 07-Dec-18 - - - - - 116,120 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 - 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. | | Transitional Performance award(3) | 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 TSP, percentile of the IHS Markit Global Mining Index constituent group and outperform the MSCI World Index by 17% 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 95 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 post 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 | | 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) | | --- | --- | --- | --- | --- | --- | --- | | Non-Executive Directors | | | | | | | | K Wood | 367,825 | - | - | - | 367,825 | 251 | | P Cooper AO | 128,010 | - | - | - | 128,010 | 267 | | G Lansdown | 45,000 | - | - | 35,000 | 80,000 | 167 | | X Liu | 60,000 | - | - | - | 60,000 | 125 | | N Mtoba | 69,386 | - | - | 2,000 | 71,386 | 149 | | W Osborn | 174,104 | - | - | - | 174,104 | 362 | | K Rumble | 161,380 | - | - | - | 161,380 | 336 | | Executive KMP | | | | | | | | G Kerr | 3,618,010 | 352,097 | - | (165,486) | 3,804,621 | 826 | | K Tovich | 432,266 | 83,243 | - | (59,935) | 455,374 | 206 | | M Fraser(4) | 3,335,403 | 335,538 | - | (250,391) | 3,410,550 | 1,344 | | J Economidis | 29,262 | 49,481 | - | - | 78,743 | 40 | | N Pillay(5) | 292,167 | - | - | - | 292,167 | 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 AB3.94. (4) M Fraser is award being a member of itself effective 30 November 2021, included in 'Rede vest on vesting of rights' are 106,000 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. SOUTH32 ANNUAL REPORT 2022 101 ### 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 | 104 | | --- | --- | | Consolidated statement of comprehensive income | 105 | | Consolidated balance sheet | 106 | | Consolidated cash flow statement | 107 | | Consolidated statement of changes in equity | 108 | | **Notes to financial statements – Basis of preparation** | **109** | | 1. Reporting entity | 109 | | 2. Basis of preparation | 109 | | 3. New standards and interpretations | 111 | | **Notes to financial statements – Results for the year** | **112** | | 4. Segment information | 112 | | 5. Expenses | 121 | | 6. Tax | 122 | | 7. Dividends | 125 | | 8. Earnings per share | 125 | | **Notes to financial statements – Operating assets and liabilities** | **126** | | 9. Trade and other receivables | 126 | | 10. Inventories | 126 | | 11. Property, plant and equipment | 127 | | 12. Intangible assets | 130 | | 13. Impairment of non-financial assets | 131 | | 14. Trade and other payables | 136 | | 15. Provisions | 136 | | **Notes to financial statements – Capital structure and financing** | **139** | | 16. Cash and cash equivalents | 139 | | 17. Interest bearing liabilities | 139 | | 18. Net finance costs | 140 | | 19. Financial assets and financial liabilities | 140 | | 20. Share capital | 150 | | **Notes to financial statements – Other notes** | **151** | | 21. Auditor's remuneration | 151 | | 22. Pension and other post-retirement obligations | 151 | | 23. Employee share ownership plans | 152 | | 24. Contingent assets and liabilities | 156 | | 25. Subsidiaries | 156 | | 26. Equity accounted investments | 157 | | 27. Interests in joint operations | 159 | | 28. Key management personnel | 160 | | 29. Related party transactions | 160 | | 30. Acquisition of subsidiaries and joint operations | 161 | | 31. Acquisition of equity accounted investments | 162 | | 32. Parent entity information | 163 | | 33. Discontinued operation | 164 | | 34. Subsequent events | 165 | | **Directors' declaration** | **166** | | **Lead auditor's independence declaration** | **167** | | **Independent auditor's report** | **169** | ![img-7.jpeg](img-7.jpeg) SOUTH52 ANNUAL REPORT 2022 103 ## Consolidated income statement for the year ended 30 June 2022 | US$M | Note | FY22 | FY21 | | --- | --- | --- | --- | | **Continuing operations** | | | | | Revenue: | | | | | Group production | 4 | 8,532 | 5,102 | | Third party products and services | 4 | 747 | 374 | | | | 9,269 | 5,476 | | Other income | | 183 | 157 | | Expenses excluding net finance costs | 5 | (6,000) | (5,571) | | Share of profit/(loss) of equity accounted investments | 26 | 272 | 141 | | **Profit/(loss) from continuing operations** | | **3,724** | **203** | | Comprising: | | | | | Group production | | 3,704 | 193 | | Third party products and services | | 30 | 10 | | **Profit/(loss) from continuing operations** | | **3,724** | **203** | | Finance expenses | | (110) | (178) | | Finance income | | 79 | 17 | | **Net finance costs** | 18 | (31) | (161) | | **Profit/(loss) before tax from continuing operations** | | **3,693** | **42** | | Income tax (expense)/benefit | 6 | (1,024) | 100 | | **Profit/(loss) after tax from continuing operations** | | **3,669** | **142** | | **Discontinued operation** | | | | | Profit/(loss) after tax from a discontinued operation | 33 | - | (137) | | **Profit/(loss) for the year** | | **3,669** | **(195)** | | **Attributable to:** | | | | | Equity holders of South32 Limited | | 3,669 | (195) | | **Profit/(loss) from continuing operations for the year attributable to equity holders of South32 Limited:** | | | | | Basic earnings per share (cents) | 8 | 57.4 | 3.0 | | Diluted earnings per share (cents) | 8 | 57.0 | 3.0 | | **Profit/(loss) for the year attributable to equity holders of South32 Limited:** | | | | | Basic earnings per share (cents) | 8 | 57.4 | (4.1) | | Diluted earnings per share (cents) | 8 | 57.0 | (4.1) | The accompanying notes form part of the consolidated financial statements. 104 FINANCIAL REPORT ### Consolidated statement of comprehensive income ### for the year ended 30 June 2022 US$M Note FY22 FY21 Profit/(loss) for the year 2,669 (19 5) Other comprehensive income Items that may be reclassified to the Consolidated Income Statement: Equity accounted investments – share of other comprehensive income/(loss), net of tax 26 (4) - Total items that may be reclassified to the Consolidated Income Statement (4) - Items not to be reclassified to the Consolidated Income Statement: Investments in equity instruments designated as fair value through other comprehensive income (FVOCI): Net fair value gains/(losses) (78) 47 Income tax (expense)/benefit 24 (1 5) Equity accounted investments – share of other comprehensive income/(loss), net of tax 26 1 (3) Gains/(losses) on pension and medical schemes 15 3 1 Income tax (expense)/benefit recognised within other comprehensive income (1) - Total items not to be reclassified to the Consolidated Income Statement (51) 30 Total other comprehensive income/(loss) (55) 30 Total comprehensive income/(loss) 2 ,61 4 (16 5) Attributable to: Equity holders of South32 Limited 2 ,61 4 (16 5) The accompanying notes form part of the consolidated financial statements. SOUTH32 ANNUAL REPORT 2022 105 ## Consolidated balance sheet as at 30 June 2022 | US$ | Note | FY22 | FY23 | | --- | --- | --- | --- | | **ASSETS** | | | | | **Current assets** | | | | | Cash and cash equivalents | 16 | 3,365 | 1,613 | | Trade and other receivables | 9 | 844 | 527 | | Other financial assets | 19 | 1 | 15 | | Inventories | 10 | 982 | 716 | | Current tax assets | | 4 | 13 | | Other | | 44 | 38 | | **Total current assets** | | **4,240** | **2,922** | | **Non-current assets** | | | | | Trade and other receivables | 9 | 1,903 | 259 | | Other financial assets | 19 | 64 | 121 | | Inventories | 10 | 76 | 74 | | Property, plant and equipment | 11 | 8,988 | 8,938 | | Intangible assets | 12 | 186 | 189 | | Equity accounted investments | 26 | 470 | 380 | | Deferred tax assets | 6 | 394 | 348 | | Other | | 15 | 11 | | **Total non-current assets** | | **13,096** | **10,320** | | **Total assets** | | **16,336** | **13,242** | | **LIABILITIES** | | | | | **Current liabilities** | | | | | Trade and other payables | 14 | 989 | 777 | | Interest-bearing liabilities | 17 | 402 | 408 | | Other financial liabilities | 19 | 6 | 11 | | Current tax payables | | 308 | 27 | | Provisions | 15 | 186 | 239 | | Deferred income | | 6 | - | | **Total current liabilities** | | **1,897** | **1,461** | | **Non-current liabilities** | | | | | Trade and other payables | 14 | 8 | 2 | | Interest-bearing liabilities | 17 | 1,435 | 799 | | Other financial liabilities | 19 | 84 | - | | Deferred tax liabilities | 6 | 307 | 265 | | Provisions | 15 | 1,835 | 1,759 | | Deferred income | | 1 | 1 | | **Total non-current liabilities** | | **3,660** | **2,826** | | **Total liabilities** | | **5,557** | **4,288** | | **Net assets** | | **10,779** | **8,954** | | **EQUITY** | | | | | Share capital | 20 | 13,469 | 13,597 | | Treasury shares | 20 | (32) | (22) | | Reserves | | (3,558) | (3,567) | | Retained earnings (accumulated losses) | | 901 | (1,053) | | Total equity attributable to equity holders of South32 Limited | | 10,780 | 8,955 | | Non-controlling interests | | (1) | (1) | | **Total equity** | | **10,779** | **8,954** | 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$ | Note | FY22 | FY21 | | --- | --- | --- | --- | | **Operating activities** | | | | | Profit/(loss) before tax from continuing operations | | **3,693** | 42 | | Profit/(loss) before tax from a discontinued operation | | - | (340) | | Adjustments for: | | | | | Non-cash or non-operating significant items | | **(77)** | (55) | | Depreciation and amortisation expense | | **624** | 720 | | Net impairment loss/(reversal) of financial assets | | **26** | - | | Net impairment loss/(reversal) of non-financial assets | | **145** | 772 | | Employee share awards expense | | **23** | 32 | | Net finance costs | | **31** | 204 | | Share of profit/(loss) of equity accounted investments | | **(272)** | (133) | | Loss on disposal of a discontinued operation | | - | 159 | | (Gains)/losses on derivative instruments, contingent consideration and other investments measured at fair value through profit or loss (FVTPL) | | **(29)** | (44) | | Other non-cash or non-operating items | | **(18)** | (6) | | Changes in assets and liabilities: | | | | | Trade and other receivables | | **(300)** | (156) | | Inventories | | **(206)** | (142) | | Trade and other payables | | **160** | 264 | | Provisions and other liabilities | | **(82)** | 95 | | Cash generated from operations | | **3,718** | 1,412 | | Interest received | | **66** | 26 | | Interest paid | | **(70)** | (70) | | Income tax paid | | **(868)** | (163) | | Dividends received | | - | 3 | | Dividends received from equity accounted investments | | **224** | 197 | | **Net cash flows from operating activities** | | **3,070** | 1,405 | | **Investing activities** | | | | | Purchases of property, plant and equipment | | **(522)** | (536) | | Exploration expenditure | | **(70)** | (54) | | Exploration expenditure expensed and included in operating cash flows | | **37** | 25 | | Purchase of intangibles | | **(6)** | (1) | | Investment in financial assets | | **(232)** | (152) | | Acquisition of subsidiaries and joint operations, net of their cash | 30 | **(114)** | - | | Acquisition of equity accounted investments | 31 | **(1,430)** | - | | Disposal of a discontinued operation, net of their cash | | - | (70) | | Cash outflows from investing activities | | **(2,325)** | (788) | | Proceeds from sale of property, plant and equipment and intangibles | | - | 40 | | Proceeds from financial assets | | **230** | 140 | | **Net cash flows from investing activities** | | **(2,095)** | (608) | | **Financing activities** | | | | | Proceeds from interest bearing liabilities | | **1,537** | 12 | | Repayment of interest bearing liabilities | | **(932)** | (52) | | Purchase of shares by Employee Share Ownership Plan (ESOP) Trusts | | **(22)** | - | | Share buy-back | | **(128)** | (346) | | Dividends paid | 7 | **(660)** | (115) | | **Net cash flows from financing activities** | | **(215)** | (501) | | Net increase in cash and cash equivalents | | **760** | 296 | | Cash and cash equivalents, net of overdrafts, at the beginning of the financial year | | **1,613** | 1,315 | | Foreign currency exchange rate changes on cash and cash equivalents | | **(8)** | 2 | | **Cash and cash equivalents, net of overdrafts, at the end of the financial year** | 16 | **2,365** | 1,613 | The accompanying notes form part of the consolidated financial statements. SOUTH52 ANNUAL REPORT 2022 107 ### Consolidated statement of changes in equity ### for the year ended 30 June 2022 Attributable to equity holders of South32 Limited | | | | | | Employee | | | | | | | Retained | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | Financial | | | share | | | | | | earnings/ | | Non- | | | | Share | Treasury | assets | | | awards | | | Other | | (accumulated | | controlling | | Total | | US$M | capital | shares | reserve | (1) | reserve | | (2) | reserves | | (3) | | losses) Total | interests | | equity | Balance as at 1 July 2021 13 ,597 (22) (22) 48 (3, 593) (1 ,0 53) 8 ,95 5 (1) 8 ,95 4 Profit/(loss) for the year - - - - - 2 ,669 2,669 - 2 ,669 Other comprehensive income/(loss) - - (5 4) - (4) 3 (55) - (55) Total comprehensive income/(loss) - - (54) - (4) 2 , 672 2 ,61 4 - 2 , 614 Transactions with owners: Dividends - - - - - (66 0) (6 60) - (6 60) Shares bought back and cancelled (12 8) - - - - - (12 8) - (12 8) Employee share entitlements for unvested awards, net of tax - - - 27 - - 27 - 27 Employee share awards vested and lapsed, net of tax - 12 - (3 0) - 12 (6) - (6) Purchase of shares by ESOP Trusts - (22) - - - - (22) - (22) Transfer of cumulative fair value loss on an investment in equity instruments (4) designated as FVOCI - - 70 - - (70) - - - Balance as at 30 June 2022 13,4 69 (32) (6) 45 (3, 597) 9 01 10 ,780 (1) 10 ,779 Balance as at 1 July 2020 1 3 ,9 4 3 (49) (5 4) 81 (3, 593) (76 5) 9, 5 6 3 (1) 9, 5 62 Profit/(loss) for the year - - - - - (19 5) (19 5) - (195) Other comprehensive income/(loss) - - 32 - - (2) 30 - 30 Total comprehensive income/(loss) - - 32 - - (197) (16 5) - (16 5) Transactions with owners: Dividends - - - - - (115) (115) - (115) Shares bought back and cancelled (3 46) - - - - - (3 4 6) - (3 4 6) Employee share entitlements for unvested awards, net of tax - - - 26 - - 26 - 26 Employee share awards vested and lapsed, net of tax - 24 - (5 9) - 24 (11) - (11) Sale of shares by ESOP Trusts - 3 - - - - 3 - 3 Balance as at 30 June 2021 13 ,597 (2 2) (22) 48 (3 ,59 3) (1 ,0 53) 8 ,9 5 5 (1) 8 ,9 5 4 (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 ,5 69 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. SOUTH32 ANNUAL REPORT 2022 109 ### 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 note 6 Uncertain tax matters note 6 Useful economic lives of assets note 11 Impairment of non-financial assets note 13 Closure and rehabilitation provisions 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. SOUTH32 ANNUAL REPORT 2022 111 ### 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 Integrated bauxite mine and alumina refinery in Australia (2) Brazil Alumina Integrated bauxite mine and alumina refinery in Brazil (3) Brazil Aluminium Aluminium smelter in Brazil Hillside Aluminium Aluminium smelter in South Africa Mozal Aluminium Aluminium smelter in Mozambique (4) Sierra Gorda Copper mine in Chile Cannington Silver, lead and zinc mine in Australia Hermosa Base metals exploration and development option in the United States Cerro Matoso Integrated laterite ferronickel mining and smelting complex in Colombia Illawarra Metallurgical Coal (IMC) Metallurgical coal mines in Australia Australia Manganese Manganese ore mine in Australia South Africa Manganese Manganese ore mines in South Africa (5) South Africa Energy Coal (SAEC) 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. SOUTH32 ANNUAL REPORT 2022 113 Notes to financial statements – Results for the year continued # 4. Segment information continued # (b) Segment results continued | P/E | Worcely Alumina | Bradl Alumina | Bradl Aluminium | Hillside Aluminium | | --- | --- | --- | --- | --- | | Revenue from customers | 1,626 | 522 | - | 2,257 | | Other^{(1)} | (1) | 2 | - | (3) | | **Total underlying revenue** | **1,625** | **524** | **-** | **2,254** | | Comprising: | | | | | | Group production | 818 | 523 | - | 2,254 | | Third party products and services^{(2)} | - | - | - | - | | Inter-segment revenue | 807 | 1 | - | - | | **Total underlying revenue** | **1,625** | **524** | **-** | **2,254** | | **Underlying EBITDA** | **971** | **150** | **(43)** | **730** | | Underlying depreciation and amortisation | (185) | (61) | (1) | (64) | | **Underlying EBIT** | **386** | **89** | **(44)** | **666** | | Comprising: | | | | | | Group production | 386 | 92 | (44) | 666 | | Exploration expensed | - | - | - | - | | Third party products and services^{(2)} | - | - | - | - | | Share of profit/(loss) of equity accounted investments | - | (3) | - | - | | **Underlying EBIT** | **386** | **89** | **(44)** | **666** | | Underlying net finance costs | | | | | | Underlying income tax (expense)/benefit | | | | | | Underlying royalty related tax (expense)/benefit | | | | | | **Underlying earnings** | | | | | | Total adjustments to profit/(loss)^{(3)} | | | | | | **Profit/(loss) for the year** | | | | | | **Underlying exploration expenditure** | **-** | **-** | **-** | **-** | | **Underlying capital expenditure^{(4)}** | **55** | **51** | **1** | **24** | | **Underlying equity accounted investments** | **-** | **40** | **-** | **-** | | **Total underlying assets^{(5)}** | **3,571** | **805** | **67** | **1,284** | | **Total underlying liabilities^{(6)}** | **1,000** | **109** | **21** | **357** | (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$63 million included in Group and unallocated items eliminations. Refer to note 4(b) Underlying results report below for the joint venture adjustments that reconcile the underlying proportions consolidated 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 return on third party products and services said from continuing operations comprises US$110 million for aluminum, US$25 million for alumina, US$110 million for coal, US$50 million for manganese, US$100 million for freight services and US$185 million for raw materials. Underlying EBIT on third party products and services said from continuing operations comprises US$5 million for aluminum, US$5 million for alumina, US$7 million for coal and US$20 million for freight services. (4) Refer to note 4(b) Underlying results report below for further details. (5) Underlying capital expenditure excludes the purchase of intangibles and capitalized 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 # Continuing operations | Metal Aluminum | Sierra Seeds^{1} | Cannington | Harmosa | Carro Moloza | Rawana Metallurgical Coal | Australia Margarene^{2} | South Africa Margarene^{2} | Sroup and unallocated flame / alms/others | Group underlying results^{3} | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 925 | 280 | 771 | - | 927 | 2,336 | 833 | 418 | (205) | 10,690 | | (1) | (39) | (35) | - | 2 | 2 | 15 | 1 | (3) | (60) | | 924 | 241 | 736 | - | 929 | 2,338 | 848 | 419 | (208) | 10,630 | | 924 | 241 | 736 | - | 929 | 2,338 | 848 | 419 | - | 10,030 | | - | - | - | - | - | - | - | - | 600 | 600 | | - | - | - | - | - | - | - | - | (808) | - | | 924 | 241 | 736 | - | 929 | 2,338 | 848 | 419 | (208) | 10,630 | | 305 | 133 | 388 | (12) | 529 | 1,507 | 488 | 78 | (69) | 4,755 | | (36) | (58) | (73) | (2) | (66) | (119) | (86) | (20) | (19) | (788) | | 271 | 75 | 315 | (14) | 463 | 1,388 | 402 | 58 | (88) | 3,967 | | 271 | 76 | 317 | (14) | 463 | 1,396 | 402 | 59 | (82) | 3,988 | | - | (1) | (2) | - | - | (9) | - | (1) | (26) | (39) | | - | - | - | - | - | - | - | - | 20 | 20 | | - | - | - | - | - | 1 | - | - | - | (2) | | 271 | 75 | 315 | (14) | 463 | 1,388 | 402 | 58 | (88) | 3,967 | | | | | | | | | | | (155) | | | | | | | | | | | (1,151) | | | | | | | | | | | (59) | | | | | | | | | | | 2,602 | | | | | | | | | | | 67 | | | | | | | | | | | 2,669 | | - | 2 | 3 | 19 | - | 11 | 1 | 1 | 37 | 74 | | 11 | 81 | 45 | 97 | 37 | 189 | 62 | 19 | 12 | 684 | | - | - | - | - | - | 2 | - | - | - | 42 | | 764 | 1,614 | 555 | 2,098 | 592 | 1,277 | 645 | 331 | 2,666 | 17,269 | | 149 | 212 | 414 | 67 | 243 | 491 | 387 | 196 | 2,844 | 6,490 | SOUTH32 ANNUAL REPORT 2022 115 Notes to financial statements – Results for the year continued # 4. Segment information continued # (b) Segment results continued | FY21 (Notated 2010) | | | | | | | --- | --- | --- | --- | --- | --- | | US$M | Warsley Alumina | Brazil Alumina | Brazil Aluminium | Infinde Aluminium | Maize Aluminium | | Revenue from customers | 1,174 | 400 | - | 1,507 | 577 | | Other(1) | (1) | - | - | 4 | 1 | | Total underlying revenue | 1,173 | 400 | - | 1,511 | 578 | | Comprising | | | | | | | Group production | 605 | 400 | - | 1,511 | 578 | | Third party products and services(2) | - | - | - | - | - | | Inter-segment revenue | 568 | - | - | - | - | | Total underlying revenue | 1,173 | 400 | - | 1,511 | 578 | | Underlying EBITDA | 318 | 117 | (3) | 358 | 132 | | Underlying depreciation and amortisation | (175) | (51) | - | (65) | (34) | | Underlying EBIT | 143 | 66 | (3) | 293 | 98 | | Comprising | | | | | | | Group production | 143 | 66 | (3) | 293 | 98 | | Exploration expensed | - | - | - | - | - | | Third party products and services(3) | - | - | - | - | - | | Share of profit/(loss) of equity accounted investments | - | - | - | - | - | | Underlying EBIT | 143 | 66 | (3) | 293 | 98 | | 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) | 55 | 25 | - | 17 | 11 | | Underlying equity accounted investments | | | | | | | Total underlying assets(6)(7) | 3,674 | 639 | 8 | 1,156 | 579 | | Total underlying liabilities(8)(9) | 1,007 | 69 | 7 | 423 | 123 | (1) The Brazil Alumina operating segment has been reclassified to separate Brazil Aluminum 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 estimation of revenue and corresponding expenses relating to freight services provided by the Group for the event ventures of US$11 million and third party product revenue of US$35 million included in Group and unallocated items eliminations. Refer to note 4.8(c) Underlying equity 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 Green's Verbal capital (use 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 13 (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$16 million for manganese, US$46 million for freight services and US$45 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 4.8(d) Underlying equity 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 | Continuing operations | | | | | | | | Discontinued operation^{1} | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Carrington | Harness | Cerro Matusi | Banana Metallurgical Coal | Australia Manganese^{2} | South Africa Manganese^{2} | Group and unallocated items/abbreviations | Group underlying results from continuing operations | South Africa Energy Coal | Group underlying results^{2} | | 746 | - | 479 | 768 | 729 | 337 | (275) | 6,422 | 862 | 7,284 | | 11 | - | 14 | 10 | 1 | - | - | 40 | (1) | 39 | | 757 | - | 493 | 758 | 730 | 337 | (275) | 6,462 | 861 | 7,323 | | 757 | - | 493 | 758 | 730 | 332 | - | 6,164 | 735 | 6,899 | | - | - | - | - | - | - | 298 | 298 | 126 | 424 | | - | - | - | - | - | 0 | (573) | - | - | - | | 757 | - | 493 | 758 | 730 | 337 | (275) | 6,462 | 861 | 7,323 | | 458 | (6) | 397 | 94 | 385 | 64 | (93) | 1,979 | (123) | 1,856 | | (66) | (2) | (75) | (397) | (81) | (16) | (28) | (790) | (27) | (817) | | 350 | (8) | 122 | (103) | 304 | 48 | (121) | 1,189 | (150) | 1,039 | | 352 | (8) | 122 | (97) | 305 | 49 | (113) | 1,207 | (153) | 1,054 | | (2) | - | - | (5) | (1) | (1) | (18) | (27) | - | (27) | | - | - | - | - | - | - | 10 | 10 | 11 | 21 | | - | - | - | (1) | - | - | - | (1) | (8) | (9) | | 350 | (8) | 122 | (103) | 304 | 48 | (121) | 1,189 | (150) | 1,039 | | | | | | | | | (127) | (63) | (170) | | | | | | | | | (326) | (1) | (327) | | | | | | | | | (53) | - | (53) | | | | | | | | | 683 | (194) | 489 | | | | | | | | | (541) | (143) | (684) | | | | | | | | | 142 | (337) | (195) | | 2 | 16 | - | 24 | 2 | 1 | 22 | 57 | - | 57 | | 43 | 64 | 45 | 188 | 55 | 15 | 12 | 510 | 76 | 606 | | | | | 2 | - | - | - | 2 | - | 2 | | 510 | 1,972 | 629 | 997 | 604 | 337 | 2,549 | 13,654 | - | 13,654 | | 315 | 47 | 224 | 385 | 361 | 185 | 1,554 | 4,700 | - | 4,700 | SOUTH32 ANNUAL REPORT 2022 117 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: | POS | Continuing operations | | --- | --- | | **Underlying EBIT** | **3,967** | | Significant items^{(1)} | 77 | | Sierra Gorda joint venture adjustments^{(2)(3)} | (44) | | Manganese joint venture adjustments^{(2)(4)} | (216) | | Gains/(losses) on the consolidation of interests in operations^{(5)} | 9 | | Exchange rate gains/(losses) on restatement of monetary items^{(6)} | 50 | | Net impairment (loss)/reversal of financial assets^{(7)(8)} | (26) | | Net impairment (loss)/reversal of non-financial assets^{(9)(10)} | (145) | | Gains/(losses) on non-tracking derivative instruments, contingent consideration and other investments measured at FVTPL^{(11)(12)} | 32 | | **Profit/(loss) from operations** | **3,724** | | **Underlying net finance costs** | **(155)** | | Sierra Gorda joint venture adjustments^{(2)} | 63 | | Manganese joint venture adjustments^{(2)} | 22 | | Exchange rate variations on net debt | 40 | | **Net finance costs** | **(31)** | | **Underlying income tax (expense)/benefit** | **(1,151)** | | **Underlying royalty related tax (expense)/benefit** | **(59)** | | Tax effect of significant items^{(1)} | (26) | | Sierra Gorda joint venture adjustments relating to income tax (expense)/benefit^{(1)} | 1 | | Sierra Gorda joint venture adjustments relating to royalty related tax (expense)/benefit^{(1)} | 4 | | Manganese joint venture adjustments relating to income tax (expense)/benefit^{(1)} | 153 | | Manganese joint venture adjustments relating to royalty related tax (expense)/benefit^{(1)} | 55 | | Tax effect of other adjustments to Underlying EBIT | 32 | | Tax effect of other adjustments to Underlying net finance costs | (13) | | Exchange rate variations on tax balances | (20) | | **Income tax (expense)/benefit** | **(1,034)** | (1) Refer to note 10(b) significant items. (2) The segment information reflects the Group's interest in material equity accounted post ventures and is presented as 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$10 million, refer to note 26 Equity accounted investments, and the carrying value of a non-current purchased credit impaired receivable of US$1.4 million, refer to note 9 Trade and other receivables. The earnings adjustments include a resolution gain of US$2.6 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$6 million included in the South Africa Manganese segment. (5) Related to a gain on the acquisition of an additional tax per cent shareholding and related rights in rebrand aluminium, recognised in other income in the Consolidated Income Statement. Refer to note 25 Acquisition of subsidiaries and joint operations. (6) Recognised investment and rating on finance costs in the Consolidated Income Statement. Refer to note 5 Expenses. (7) Related to a US$6 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 14 Financial assets and financial liabilities. (8) Related primarily to a US$4.6 million impairment of property, plant and equipment of Eagle Seven Metalurgical Coils included in Group and unallocated items/dimensions and a US$4.1 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$4.4 million remeasurement of contingent consideration payable related to the acquisition of Sierra Gorda included in Group and unallocated items/dimensions. 118 FINANCIAL REPORT # **4. Segment information continued** # **(b) Segment results continued** # © Underlying results reconciliation continued | | Group underlying results from continuing operations | Sierra Gorda joint venture adjustments^{(1)} | Manganese joint venture adjustments^{(2)} | Group statutory results from continuing operations | | --- | --- | --- | --- | --- | | FY21 | | | | | | US$M | | | | | | **Total revenue** | **10,630** | **(241)** | **(1,130)** | **9,369** | | **Depreciation and amortisation** | **788** | **(58)** | **(104)** | **624** | | **Share of profit/(loss) of equity accounted investments** | **(2)** | **30** | **244** | **273** | | **Exploration expenditure** | **74** | **(3)** | **(2)** | **70** | | **Capital expenditure** | **684** | **(81)** | **(81)** | **522** | | **Equity accounted investments** | **42** | **30** | **398** | **470** | | **Total assets** | **17,269** | **(452)** | **(481)** | **16,336** | | **Total liabilities** | **6,490** | **(452)** | **(481)** | **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. | | Continuing operations | Discontinued operation^{(3)} | Total | | --- | --- | --- | --- | | FY21 | | | | | US$M | | | | | **Underlying EBIT** | **1,189** | **(150)** | **1,039** | | Significant items^{(4)} | 55 | - | 55 | | Manganese joint venture adjustments^{(5)(6)} | (210) | - | (210) | | Gains/(losses) on the disposal of interests in operations | - | (139) | (139) | | Exchange rate gains/(losses) on restatement of monetary items^{(7)} | (35) | (34) | (69) | | Net impairment/(loss)/revenue of non-financial assets^{(8)(9)} | (764) | - | (764) | | Gains/(losses) on non-trading derivative instruments, contingent consideration and other investments measured at FVTPL^{(10)} | (9) | 46 | 37 | | Major corporate restructures^{(11)} | (23) | - | (23) | | **Profit/(loss) from operations** | **203** | **(297)** | **(94)** | | **Underlying net finance costs** | **(127)** | **(43)** | **(170)** | | --- | --- | --- | --- | | Manganese joint venture adjustments^{(5)} | 18 | - | 18 | | Exchange rate variations on net debt | (52) | - | (52) | | **Net finance costs** | **(161)** | **(43)** | **(204)** | | **Underlying income tax (expense)/benefit** | **(326)** | **(1)** | **(327)** | | --- | --- | --- | --- | | **Underlying royalty related tax (expense)/benefit** | **(53)** | **-** | **(53)** | | Manganese joint venture adjustments relating to income tax (expense)/benefit^{(6)} | 124 | - | 124 | | Manganese joint venture adjustments relating to royalty related tax (expense)/benefit^{(6)} | 53 | - | 53 | | Tax effect of other adjustments to Underlying EBIT | 247 | - | 247 | | Tax effect of other adjustments to Underlying net finance costs | (7) | - | (7) | | Exchange rate variations on tax balances | 62 | 4 | 66 | | **Income tax (expense)/benefit** | **100** | **3** | **103** | (1) Refer to note 3 (C) is semi-compensation (2) Refer to note 4(b)(i) 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$10 million included in the Australia/Manganese segment and US$100 million included in the Tax (F) 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$100 million impairment of property plant and equipment in the NIG segment and a US$16 million impairment of intangible assets included in Group and unallocated items and in nature. 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$8 million included in the Hillside Aluminum segment. (8) The major corporate restructure costs primarily relate to the only 8 ratios of the Group's functional structures and office footprint and are included in Group and unallocated item eliminations. SOUTH32 ANNUAL REPORT 2022 119 Notes to financial statements – Results for the year continued # **4. Segment information continued** # **(b) Segment results continued** # (i) Underlying results reconciliation continued | | Group underlying results from continuing operations | Maniperson joint venture adjustments* | Group statutory results from continuing operations | | --- | --- | --- | --- | | FY21 | | | | | US$M | | | | | Total revenue | 6,462 | (986) | 5,476 | | Depreciation and amortisation | 790 | (97) | 693 | | Share of profit/(loss) of equity accounted investments | (1) | 142 | 141 | | Exploration expenditure | 57 | (3) | 54 | | Capital expenditure | 530 | (70) | 460 | | Equity accounted investments | 2 | 378 | 380 | | Total assets | 13,654 | (412) | 12,242 | | Total liabilities | 4,700 | (412) | 4,288 | (1) The segment information reflects the Group's interest in material equity accounted joint ventures and is presented on a comprehensive consolidated 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. | | Group | Tax | Net | | --- | --- | --- | --- | | US$M | | | | | Recognition of indirect tax assets | 77 | (26) | 51 | | Total significant items | 77 | (26) | 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$51 million post tax) recorded as other income in the Consolidated Income Statement. | | Group | Tax | Net | | --- | --- | --- | --- | | FY21 | | | | | US$M | | | | | Disposal of royalties | 55 | - | 55 | | Total significant items | 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$35 million in equity. These royalties were recognised as intangible assets with a US$nil carrying value. The transaction completed on 9 February 2021 and the Group recognised other income of US$55 million (US$55 million post tax) in the Consolidated Income Statement and was included in Group and unallocated items/estimations. 120 FINANCIAL REPORT #### 4. Segment information continued ##### (c) Geographical information The geographical information below analyses statutory Group revenue and non-current assets by location. Revenue is primarily presented by the geographical destination of the product and non-current assets are presented by the geographical location of the operations. | US$M | Revenue from external customers | | Non-current assets | | | --- | --- | --- | --- | --- | | | FY22 | FY21^{(1)} | FY22 | FY21 | | Australia | **1,013** | 452 | **5,099** | 5,232 | | China | **776** | 612 | - | - | | India | **581** | 332 | - | - | | Japan | **523** | 291 | - | - | | Middle East | **283** | 238 | - | - | | Mozambique | **458** | 292 | **497** | 385 | | Netherlands | **1,255** | 705 | **1,648** | - | | Russia | **44** | 63 | - | - | | South Africa | **633** | 417 | **933** | 986 | | South America | **156** | 133 | **1,172** | 1,092 | | South Korea | **692** | 516 | - | - | | United States of America | **439** | 301 | **2,185** | 2,049 | | Rest of Asia | **967** | 452 | **103** | 106 | | Rest of Europe | **1,079** | 444 | **1** | 1 | | Rest of North America | **278** | 169 | **1** | - | | Rest of Oceania | **92** | 59 | - | - | | Unallocated assets^{(2)} | - | - | **458** | 469 | | **Total** | **9,269** | 5,476 | **12,096** | 10,320 | (1) Revenue from external customers comprises revenue from continuing operations of US$1,476 million and excludes revenue from a discontinued operation of US$861 million. Refer to note 13 Discontinued operation. (2) Comprises other financial assets and deferred tax assets. #### 5. Expenses | US$M | Note | FY22 | FY21 | | --- | --- | --- | --- | | Changes in inventories of finished goods and work in progress | | **(133)** | (72) | | Raw materials and consumables used | | **2,309** | 1,771 | | Wages, salaries and redundancies | | **657** | 683 | | Pension and other post-retirement obligations | | **60** | 61 | | External services (including transportation) | | **1,111** | 905 | | Third party commodity purchases | | **718** | 351 | | Depreciation and amortisation | | **624** | 693 | | Exchange rate (gains)/losses on restatement of monetary items | | **(50)** | 35 | | (Gains)/losses on derivative instruments, contingent consideration and other investments measured at FVTPL | | **(29)** | 7 | | Government and other royalties paid and payable | | **295** | 160 | | Exploration expenditure incurred and expensed | | **37** | 25 | | Net impairment loss/(reversal) of financial assets | 19 | **26** | - | | Net impairment loss/(reversal) of non-financial assets | 13 | **145** | 772 | | Lease rentals^{(3)} | | **77** | 51 | | All other operating expenses | | **153** | 129 | | **Total expenses** | | **6,000** | 5,571 | (1) Includes short-term, low-value and variable lease rentals. SOUTH32 ANNUAL REPORT 2022 121 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$M | FY22 | FY21 | | --- | --- | --- | | Current income tax (expense)/benefit | (1,006) | (196) | | Deferred income tax (expense)/benefit | (18) | 199 | | Total income tax (expense)/benefit | (1,024) | 103 | | Income tax expense attributable to: | | | | Continuing operations | (1,024) | 100 | | Discontinued operation(1) | - | 3 | | Total income tax (expense)/benefit | (1,024) | 103 | (1) Refer to note 33 Discontinued operation Income tax (expense)/benefit Income tax (expense)/benefit for the period is the tax payable on the current period's taxable income/(loss) based on the applicable income tax rate for each jurisdiction adjusted for changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses. Current tax is calculated using the tax rates enacted or substantively enacted at period end and includes any adjustment to tax payable in respect of previous years. # (b) Reconciliation of prima facie tax expense to income tax expense | US$M | FY22 | FY21 | | --- | --- | --- | | Profit/(loss) before tax from continuing operations | 3,693 | 42 | | Profit/(loss) before tax from a discontinued operation(1) | - | (340) | | Deduct: Profit/(loss) from equity accounted investments included in continuing operations | 372 | 141 | | Deduct: Profit/(loss) from equity accounted investments included in a discontinued operation(1) | - | (8) | | Profit/(loss) subject to tax | 3,431 | (631) | | Income tax on profit/(loss) calculated at 30 per cent | (1,026) | 129 | | Tax rate differential on non-Australian income | 73 | 5 | | Exchange variations and other translation adjustments | (30) | 66 | | Withholding tax on distributed earnings | (94) | (3) | | Derecognition of future tax benefits | (7) | (108) | | Change in tax rates | (3) | - | | Prior year adjustments | (5) | 10 | | Other | 19 | 6 | | Total income tax (expense)/benefit | (1,024) | 103 | (1) Refer to note 32 Discontinued operation 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 | Deferred tax assets | | Deferred tax liabilities | | Deferred tax (charged/credited to the Consolidated Income Statement) | | | --- | --- | --- | --- | --- | --- | --- | | | FY22 | FY21 | FY22 | FY21 | FY22 | FY22^{(1)} | | Type of temporary difference | | | | | | | | Depreciation | 295 | 321 | 305 | 302 | (29) | 316 | | Employee benefits | 49 | 53 | (11) | (12) | (3) | 15 | | Closure and rehabilitation | 208 | 182 | (51) | (69) | 27 | 2 | | Other provisions | - | 3 | (13) | (14) | (4) | 4 | | Deferred charges | (60) | (67) | - | - | 7 | (73) | | Non tax-depreciable fair value adjustments, revaluations and mineral rights | (94) | (123) | 12 | 29 | 29 | 1 | | Tax-effected losses | 6 | 2 | (7) | (11) | - | (4) | | Brazil deferral incentive^{(2)} | - | - | 64 | 56 | (8) | (14) | | Losses | - | 10 | (1) | (2) | (10) | 24 | | Other | (10) | (33) | 9 | (34) | (27) | 28 | | Total | 394 | 348 | 307 | 265 | (18) | 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 operations. (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 reactivated 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)} | 31 | 8 | | Mineral rights | 589 | 588 | | Impairment of investments in subsidiaries | 945 | 978 | | Closure and rehabilitation | 50 | 57 | | Depreciable assets | 8 | 8 | | Total unrecognised deferred tax assets | 1,613 | 1,639 | | Unrecognised deferred tax liabilities | | | | Taxable temporary differences associated with investments and undistributed earnings in subsidiaries | 39 | 39 | | Total unrecognised deferred tax liabilities | 39 | 39 | (1) Represents tax losses that have no equity. SOUTH52 ANNUAL REPORT 2022 123 ### 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 | FY22 | FY21 | | --- | --- | --- | | Prior year final dividend^{(1)} | 163 | 48.5 | | Prior year special dividend^{(1)} | 93 | - | | Interim dividend^{(1)} | 404 | 66.5 | | **Total dividends declared and paid during the year** | **660** | **115** | (1) On 19 August 2022, the Directors received to pay a fully-franked final dividend of US $ 5 cents per share (US$4.6 million) and a fully-franked special dividend of US $ 5 cents per share (US$5.0 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-divisional dates, therefore reducing the dividend paid externally to US$0.06 million. (2) On 17 February 2022, the Directors received to pay a fully-franked interim dividend of US $ 7 cents per share (US$4.6 million) in respect of the 2022 financial fall year. The dividend was paid on 7 April 2022, in addition to the ESOP Trusts receiving dividends from South32 Limited, a total of 2,485,424 shares were bought back between the declaration and the ex-divisional dates, therefore reducing the dividend paid externally to US$0.04 million. ### 8. Earnings Account | US$M | FY22 | FY21 | | --- | --- | --- | | Franking credits at the beginning of the financial year | 339 | 268 | | Credits arising from tax paid payable by South32 Limited^{(1)} | 555 | 47 | | Credits arising from the receipt of franked dividends | 71 | 63 | | Utilisation of credits arising from the payment of franked dividends | (266) | (40) | | **Total franking credits available at the end of the financial year^{(2)}** | **689** | **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$2.07 million. Refer to note 34 Subsequent events. ## 8. Earnings per share Basic earnings per share (EPS) amounts are calculated based on profit or loss attributable to equity holders of South32 Limited and the weighted average number of shares outstanding during the year. Dilutive EPS amounts are calculated based on profit or loss attributable to equity holders of South32 Limited and the weighted average number of shares outstanding after adjustment for the effects of all dilutive potential shares. The following reflects the profit/(loss) and share data used in the basic and diluted EPS computations: ### 1. Profit/(loss) attributable to equity holders | US$M | FY22 | FY21 | | --- | --- | --- | | Continuing operations | 3,669 | 142 | | Discontinued operation^{(1)} | - | (337) | | **Profit/(loss) attributable to equity holders of South32 Limited (basic)** | **3,669** | **(195)** | | **Profit/(loss) attributable to equity holders of South32 Limited (diluted)** | **3,669** | **(195)** | (1) Refer to note 33 Discontinued operation. ### 2. Weighted average number of shares | US$/bn | FY22 | FY21 | | --- | --- | --- | | Basic EPS denominator^{(1)} | 4,647 | 4,771 | | Shares contingently issuable under employee share ownership plans | 32 | 14 | | **Diluted EPS denominator** | **4,679** | **4,785** | (1) The basic EPS denominator is the aggregate of the weighted average number of shares after deduction of the weighted average number of treasury shares outstanding and shares permanently cancelled through the on-market share buy-back program. ### 3. Earnings per share | US$/bn | FY22 | FY21 | | --- | --- | --- | | **Continuing operations** | | | | Basic EPS | 57.4 | 3.0 | | Diluted EPS | 57.0 | 3.0 | | **Attributable to ordinary equity holders of South32 Limited** | | | | Basic EPS | 57.4 | (4.1) | | Diluted EPS | 57.0 | (4.1) | SOUTH32 ANNUAL REPORT 2022 125 ## 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 | FY22 | FY21 | | --- | --- | --- | | **Current** | | | | Trade receivables | 643 | 433 | | Loans to equity accounted investments^{(1)} | 7 | 10 | | Other receivables | 194 | 84 | | **Total current trade and other receivables^{(2)}** | **844** | **527** | | **Non-current** | | | | Loans to equity accounted investments^{(1)(3)} | 1,793 | 187 | | Other receivables | 110 | 72 | | **Total non-current trade and other receivables^{(2)}** | **1,902** | **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$40). Refer to note 19 Financial assets and financial liabilities. Trade receivables generally have terms of up to 30 days. Trade and other receivables which are not held at FVTRL are recognised initially at fair value and subsequently at amortised cost using the effective interest method, less an allowance for expected credit losses. ### 10. Inventories | US$M | FY22 | FY21 | | --- | --- | --- | | **Current** | | | | Raw materials and consumables | 455 | 323 | | Work in progress | 338 | 236 | | Finished goods | 189 | 157 | | **Total current inventories** | **983** | **716** | | **Non-current** | | | | Raw materials and consumables | 58 | 52 | | Work in progress | 21 | 22 | | **Total non-current inventories** | **76** | **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$42 million) were recognised in the year. Inventories are valued at the lower of cost and net realisable value. Cost is determined primarily on the basis of average cost. For processed inventories, cost is derived on an absorption costing basis. Cost comprises the cost of purchasing raw materials and the cost of production, including attributable overheads. In respect of minerals inventory, quantities are assessed primarily through surveys and assays. 126 FINANCIAL REPORT ## 11. Property, plant and equipment | FY21 US$ | Land and buildings | | Plant and equipment | | Other mineral assets | Assets under construction | Exploration and evaluation | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | ROU lease assets | Other | ROU lease assets | Other | | | | | | **Cost** | | | | | | | | | | At the beginning of the financial year | 50 | 2,299 | 906 | 13,061 | 4,468 | 594 | 153 | 21,531 | | Additions | 9 | - | 57 | 152 | - | 547 | 59 | 824 | | Acquisition of subsidiaries and joint operations^{(1)} | - | 22 | 1 | 95 | - | 5 | - | 123 | | Foreign exchange movements in closure and rehabilitation provisions^{(2)} | - | - | - | (127) | - | - | - | (127) | | Disposals | (22) | (2) | (21) | (171) | (35) | - | - | (241) | | Transfers and other movements | - | 33 | - | 194 | 154 | (331) | - | - | | **At the end of the financial year** | **37** | **2,352** | **943** | **13,204** | **4,547** | **815** | **212** | **22,110** | | **Accumulated depreciation and impairments** | | | | | | | | | | At the beginning of the financial year | 28 | 1,396 | 274 | 9,001 | 1,894 | - | - | 12,593 | | Depreciation charge for the year | 7 | 67 | 51 | 415 | 79 | - | - | 619 | | Net impairments for the year^{(3)} | - | (15) | 7 | (17) | 102 | 51 | 13 | 141 | | Disposals | (20) | (2) | (17) | (167) | (35) | - | - | (231) | | Transfers and other movements | - | (8) | 1 | 7 | - | - | - | - | | **At the end of the financial year** | **15** | **1,438** | **316** | **9,229** | **2,050** | **51** | **13** | **13,122** | | **Net book value at 30 June 2022^{(4)}** | **22** | **914** | **627** | **3,960** | **2,497** | **764** | **199** | **8,988** | (1) Refer to note 30 Acquisition of subsidiaries and joint operations. (2) Refer to note 31 Provisions. (3) Refer to note 12 Impairment of non-financial assets. (4) Includes US$77 million of land and buildings, US$57 million of plant and equipment, US$1,629 million of other mineral assets, US$230 million of assets under construction and US$112 million of exploration and acquisition related expenditure that relates to the non-issu project. Capital expenditure commitments as at 30 June 2022 were US$114 million (FY21: US$83 million). | FY21 US$ | Land and buildings | | Plant and equipment | | Other mineral assets | Assets under construction | Exploration and evaluation | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | ROU lease assets | Other | ROU lease assets | Other | | | | | | **Cost** | | | | | | | | | | At the beginning of the financial year | 51 | 2,736 | 905 | 15,196 | 4,687 | 764 | 81 | 24,420 | | Additions | 3 | - | 24 | 506 | - | 500 | 62 | 1,095 | | Foreign exchange movements in closure and rehabilitation provisions^{(2)} | - | - | - | 238 | - | - | - | 238 | | Disposals | (4) | (5) | (20) | (104) | (42) | - | - | (175) | | Disposal of a discontinued operation^{(3)} | - | (525) | (3) | (3,082) | (404) | (33) | - | (4,047) | | Transfers and other movements | - | 93 | - | 307 | 227 | (637) | 10 | - | | **At the end of the financial year** | **50** | **2,299** | **906** | **13,061** | **4,468** | **594** | **153** | **21,531** | | **Accumulated depreciation and impairments** | | | | | | | | | | At the beginning of the financial year | 13 | 1,766 | 241 | 10,959 | 1,761 | - | - | 14,740 | | Depreciation charge for the year^{(3)} | 11 | 71 | 53 | 475 | 100 | - | - | 710 | | Net impairments for the year^{(3)} | 8 | 41 | - | 394 | 293 | - | - | 736 | | Disposals | (4) | (5) | (17) | (101) | (42) | - | - | (169) | | Disposal of a discontinued operation^{(3)} | - | (677) | (3) | (2,660) | (284) | - | - | (3,424) | | Transfers and other movements | - | - | - | (66) | 66 | - | - | - | | **At the end of the financial year** | **28** | **1,396** | **274** | **9,001** | **1,894** | **-** | **-** | **12,593** | | **Net book value at 30 June 2021** | **22** | **903** | **632** | **4,060** | **2,574** | **594** | **153** | **8,938** | (1) Refer to note 12 Provisions. (2) Refer to note 30 Discontinued operation. (3) Includes depreciation relating to a discontinued operation of US$23 million. Refer to note 33 Discontinued operation. (4) Refer to note 12 Impairment of non-financial assets. SOUTH32 ANNUAL REPORT 2022 127 ### 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 25 to 40 years straight-line Land not depreciated Plant and equipment 3 to 30 years straight-line ROU assets based on the shorter of the useful life or the lease term (straight-line) Mineral rights based on Ore Reserves on a units of production basis Capitalised exploration, evaluation and development expenditure 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. SOUTH32 ANNUAL REPORT 2022 129 Notes to financial statements – Operating assets and liabilities continued # **12. Intangible assets** | FY01 | Goodwill | Other Intangibles | Total | | --- | --- | --- | --- | | US$M | | | | | **Cost** | | | | | At the beginning of the financial year | 139 | 278 | 417 | | Additions | - | 4 | 4 | | Acquisition of subsidiaries and joint operations^{(1)} | - | 2 | 2 | | **At the end of the financial year** | **139** | **284** | **423** | | **Accumulated amortisation and impairments** | | | | | At the beginning of the financial year | - | 228 | 228 | | Amortisation charge for the year | - | 5 | 5 | | Impairments for the year | - | 4 | 4 | | **At the end of the financial year** | **-** | **237** | **237** | | **Net book value at 30 June 2022** | **139** | **47** | **186** | (1) Refer to note 30 Acquisition of subsidiaries and joint operations. | FY01 | Goodwill | Other Intangibles | Total | | --- | --- | --- | --- | | US$M | | | | | **Cost** | | | | | At the beginning of the financial year | 193 | 325 | 518 | | Additions | - | 1 | 1 | | Disposals | - | (28) | (28) | | Disposal of a discontinued operation^{(1)} | (54) | (20) | (74) | | **At the end of the financial year** | **139** | **278** | **417** | | **Accumulated amortisation and impairments** | | | | | At the beginning of the financial year | 54 | 216 | 270 | | Amortisation charge for the year^{(1)} | - | 10 | 10 | | Disposals | - | (28) | (28) | | Disposal of a discontinued operation^{(1)} | (54) | (6) | (60) | | Impairments for the year | - | 36 | 36 | | **At the end of the financial year** | **-** | **228** | **228** | | **Net book value at 30 June 2022** | **139** | **50** | **189** | (1) Refer to note 33 Discontinued operation. (2) Includes amortisation relating to a discontinued operation of US$8 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 | 5 years | | --- | --- | | Contract based intangible assets | 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 | Note | FY22 | FY21 | | --- | --- | --- | --- | | **Impairment** | | | | | Property, plant and equipment | 11 | 176 | 728 | | ROU lease assets^{(1)} | 11 | 7 | 8 | | Intangible assets | 12 | 4 | 36 | | **Impairment reversal** | | | | | Property, plant and equipment | 11 | (62) | - | | **Total net impairment^{(2)}** | | **145** | **772** | (1) During FY21, the major corporate restructures earnings adjustment included an impairment of ROU lease assets of US$8 million. Refer to note 1(b) Underlying results (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 ladder withdrew from the negotiations and the Group has since revised its recoverable amount of the Eagle Downs CGU to US$64, bringing the total impairment recognised for the Eagle Downs CGU in FY22 to US$183 million. The Group continues to investigate the potential divestment of our interest in Eagle Downs. The long-run metallurgical coal prices and exchange rates used as part of the Group's FVLCD determinations at 30 June 2022 were within the following ranges as published by market commentators: | FY22 | Assumptions used | | --- | --- | | Metallurgical coal (US$/t) | 135 to 175 | | Foreign exchange rates (A$ to US$) | 0.71 to 0.80 | The fair value measurement was categorised as a Level 3 fair value based on the inputs in the discounted cashflow valuation model in combination with the use of the market approach (refer to note 19 Financial assets and financial liabilities). In determining the FVLCD, a real US$ 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$13 million recognised in exploration and evaluation. SOUTH52 ANNUAL REPORT 2022 131 Notes to financial statements – Operating assets and liabilities continued # **13. Impairment of non-financial assets continued** # **(a) Recognised impairments - 30 June 2022 continued** # *Brazil Aluminum* On 6 January 2022, the Group announced its decision to participate in a restart of Brazil Aluminum. The Group assessed the implications of the restart decision and reviewed the impact on the carrying value of the Brazil Aluminum CGU as at 31 December 2021. At 31 December 2021, the Group reversed the full impairment that was recognised when the smelter was placed on care and maintenance in 2015, limited to the carrying amount that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised at such time. The recoverable amount remains significantly higher than the carrying amount recorded. The recoverable amount was based on the smelter's FVLCD and was informed by the Group's production profile and cost profile which were consistent with the Group's commitments to long-term power agreements. The key assumptions used for commodity prices were comparable to market consensus forecasts and foreign exchange rates were aligned with forward market rates. The fair value measurement was categorised as a Level 3 fair value based on the inputs in the discounted cashflow valuation model (refer to note 39 Financial assets and financial liabilities). In determining the FVLCD, a real US$ 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)(i) Significant items. The Group did not identify any impairment indicator as at 30 June 2022. # **(b) Recognised impairments - 30 June 2021** # *Rawarra 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$40 per tonne CO$_{2}$e was applied to all Scope 1 and 2 emissions and we assumed no carbon exemptions or allowances are employed. The fair value measurement was categorised as a Level 3 fair value based on the inputs in the discounted cashflow valuation model (refer to note 39 Financial assets and financial liabilities). In determining the FVLCD, a real US$ 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: | FY01 | Assumptions cost | | --- | --- | | Metallurgical coal (US$/t) | 112 to 160 | | Energy coal (US$/t) | 58 to 78 | | Foreign exchange rates (A$ to US$) | 0.71 to 0.77 | 132 FINANCIAL REPORT # 13. Impairment of non-financial assets continued # (c) Impairment test for CGUs containing goodwill For the purpose of impairment testing, goodwill has been allocated to CGUs that are expected to benefit from the synergies of the business combination and which represent the level at which management will monitor and manage the goodwill. The carrying amount of goodwill has been allocated to the following CGU: | US$/t | Note | F'21 | F'22 | | --- | --- | --- | --- | | Hillside Aluminium | | 139 | 139 | | Total goodwill | 12 | 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. | F'21 | Assumptions used | Change required for the carrying amount to equal the recoverable amount | | --- | --- | --- | | Aluminium prices (US$/t) | 1,720 to 2,866 | Decrease of 5% | | Alumina prices (US$/t) | 278 to 400 | Increase of 18% | | Foreign exchange rates (US$ to ZAR) | 14.2 to 16.3 | 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 (F'21: range of between 6 and 8 per cent), and a country risk premium of 2 per cent (F'21: 2 per cent) was applied to post tax cash flows expressed in real terms. SOUTH52 ANNUAL REPORT 2022 133 ### 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 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. Commodity prices Forward market and contract prices, and longer-term price protocol estimates which includes an assessment of the impact carbon price assumptions might have. Exchange rates Observable forward market foreign exchange rates, and longer-term price protocol estimates. Discount rates Risk-adjusted cost of capital appropriate to the resource. Regulatory approvals Life of operation plans include assumptions associated with the successful application, and timing thereof, of ongoing and future regulatory approvals. Carbon prices Actual enacted schemes less allowable abatements, where applicable, and a long-term base case estimate of US$60 per tonne CO -e (real) applied to all Scope 1 and 2 emissions from FY40 onwards. 2 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$60 per tonne CO -e (real), as a result of implications from key policy and market developments over the 2 year, including COP26, trends in market-driven carbon prices and updated country and corporate benchmarks. When assessing for impairment indicators, the Group has considered the sensitivity of operations to changes in carbon prices. The Group’s operations are not uniformly impacted by carbon prices. They are influenced by the amount of Scope 1 and 2 emissions the operation generates, in combination with the respective life of operation plans. The Group’s CGUs with a higher carbon sensitivity include Worsley Alumina, IMC, Hillside Aluminium and Mozal Aluminium. Previously impaired CGUs When assessing for impairment and impairment reversal indicators, the fundamental characteristics of previously impaired CGUs are relevant to their sensitivity to key estimates and assumptions. For previously impaired CGUs these include: – CGUs with higher operating margins and with life of operation plans longer than 10 years which are less sensitive to short-term commodity prices and foreign exchange rates, for example Worsley Alumina; – CGUs with lower operating margins which are highly sensitive to movements in commodity prices and foreign exchange rates, for example South Africa Manganese and IMC; and – CGUs with higher operating margins, shorter life of operation plans and exposure to commodities that display greater price volatility, for example Australia Manganese. The operating assets for previously impaired CGUs are included in note 4(b) Segment results. SOUTH32 ANNUAL REPORT 2022 135 Notes to financial statements – Operating assets and liabilities continued # **14. Trade and other payables** | US$M | FY22 | FY23 | | --- | --- | --- | | **Current** | | | | Trade creditors | 813 | 663 | | Other creditors | 176 | 114 | | **Total current trade and other payables** | **989** | **777** | | **Non-current** | | | | Trade creditors | 7 | - | | Other creditors | 1 | 2 | | **Total non-current trade and other payables** | **8** | **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 | Note | FY22 | FY23 | | --- | --- | --- | --- | | **Current** | | | | | Employee benefits | | 171 | 195 | | Closure and rehabilitation | | 8 | 15 | | Other | | 7 | 29 | | **Total current provisions** | | **186** | **239** | | **Non-current** | | | | | Employee benefits | | 4 | 6 | | Closure and rehabilitation | | 1,785 | 1,702 | | Post-retirement employee benefits | 22 | 34 | 41 | | Other | | 12 | 10 | | **Total non-current provisions** | | **1,835** | **1,759** | 136 FINANCIAL REPORT # **15. Provisions continued** | P/21 USDA | Employee benefits | Closure and rehabilitation | Post- retirement employee benefits | Other | Total | | --- | --- | --- | --- | --- | --- | | At the beginning of the financial year | 201 | 1,717 | 41 | 39 | 1,998 | | **Charge/(credit) for the year to the Consolidated Income Statement:** | | | | | | | Underlying | 156 | 3 | 1 | 6 | 166 | | Discounting^{(1)} | - | 67 | - | - | 67 | | Change in discount rate^{(2)} | - | (3) | - | - | (3) | | Net interest expense | - | - | 3 | - | 3 | | Exchange rate variations | (16) | (19) | (4) | (3) | (40) | | Released during the year | (8) | (8) | - | (19) | (35) | | Amounts capitalised for change in costs and estimates | - | 167 | - | - | 167 | | Amounts capitalised for change in discount rate^{(2)} | - | (15) | - | - | (15) | | Foreign exchange amounts capitalised | - | (127) | - | - | (127) | | Amounts taken to retained earnings | - | - | (3) | - | (3) | | Utilisation | (160) | (9) | (4) | (4) | (177) | | Acquisition of subsidiaries and joint operations^{(3)} | - | 19 | - | - | 19 | | **At the end of the financial year** | **175** | **1,793** | **36** | **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 rules or charges (credited) to the Consolidated Income Statement in the case of closed rules. | P/21 USDA | Employee benefits | Closure and rehabilitation | Post- retirement employee benefits | Other | Total | | --- | --- | --- | --- | --- | --- | | At the beginning of the financial year | 188 | 1,830 | 77 | 78 | 2,173 | | **Charge/(credit) for the year to the Consolidated Income Statement:** | | | | | | | Underlying | 184 | 16 | 1 | 22 | 223 | | Discounting^{(1)} | - | 120 | - | 3 | 123 | | Change in discount rate^{(2)} | - | (23) | - | - | (23) | | Net interest expense^{(3)} | - | - | 8 | - | 8 | | Exchange rate variations | 21 | 51 | 16 | 8 | 96 | | Released during the year | (2) | (3) | - | (4) | (9) | | Amounts capitalised for change in costs and estimates | - | 271 | - | - | 271 | | Amounts capitalised for change in discount rate | - | 235 | - | - | 235 | | Foreign exchange amounts capitalised | - | 238 | - | - | 238 | | Amounts taken to retained earnings | - | - | (1) | - | (1) | | Utilisation | (152) | (21) | (7) | (33) | (213) | | Disposal of a discontinued operation^{(4)} | (38) | (997) | (60) | (30) | (1,125) | | Transfers and other movements | - | - | 7 | (5) | 2 | | **At the end of the financial year** | **201** | **1,717** | **41** | **39** | **1,998** | (1) Includes amounts relating to a discontinued operation of Libbes million. Refer to note 10 Discontinued operation. (2) Includes amounts relating to a discontinued operation of Libbes million. Refer to note 11 Discontinued operation. (3) Includes amounts relating to a discontinued operation of Libbes million. Refer to note 12 Discontinued operation. (4) Refer to note 13 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. SOUTH32 ANNUAL REPORT 2022 137 ### 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 | FY22 | FY21 | | --- | --- | --- | | Cash | 763 | 596 | | Short-term deposits | 1,602 | 1,017 | | **Cash and cash equivalents^{(1)}** | **2,365** | **1,613** | (1) Cash and cash equivalents include US$4 million (FY22: US$5 million) which is restricted by legal or contractual arrangements. (2) Cash and cash equivalents include US$135 million (FY22: US$185 million) consisting of short-term deposits and cash managed by the Group on behalf of its equity accounted investments. The corresponding amount payable is included in note 17 interest bearing liabilities. ### 17. Interest bearing liabilities | US$M | FY22 | FY21 | | --- | --- | --- | | **Current** | | | | Lease liabilities | 40 | 37 | | Unsecured loans from equity accounted investments^{(2)} | 335 | 285 | | Unsecured other | 27 | 86 | | **Total current interest bearing liabilities** | **402** | **408** | | **Non-current** | | | | Senior unsecured notes | 689 | - | | Lease liabilities | 610 | 650 | | Unsecured other | 126 | 149 | | **Total non-current interest bearing liabilities** | **1,435** | **799** | (1) Refer to note 18 Cash and cash equivalents and note 19 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 | Lease liabilities | Other interest bearing liabilities | Total interest bearing liabilities | | --- | --- | --- | --- | | **At the beginning of the financial year** | **687** | **520** | **1,307** | | Changes from financing cash flows: | | | | | Net receipt/(repayment) | (46) | 641 | 595 | | **Total changes from financing cash flows** | **(46)** | **641** | **595** | | The effect of changes in foreign exchange rates | (57) | 9 | (48) | | Net increase/(decrease) in lease liabilities | 66 | - | 66 | | Other changes: | | | | | Interest expense | 53 | 23 | 76 | | Interest paid | (53) | (16) | (69) | | **At the end of the financial year** | **650** | **1,177** | **1,827** | SOUTH32 ANNUAL REPORT 2022 139 Notes to financial statements – Capital structure and financing continued # **18. Net finance costs** | US$M | FY22 | FY21 | | --- | --- | --- | | **Finance expenses** | | | | Interest on borrowings | 31 | 15 | | Interest on lease liabilities | 53 | 55 | | Discounting on provisions and other liabilities | 65 | 59 | | Change in discount rate on closure and rehabilitation provisions | (2) | (6) | | Net interest expense on post-retirement employee benefits | 3 | 3 | | Exchange rate variations on net debt | (40) | 52 | | | **110** | **178** | | **Finance income** | | | | Interest on loans to equity accounted investments | 63 | 8 | | Other interest income | 16 | 9 | | | **79** | **17** | | **Net finance costs** | **31** | **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: | US$M | FY22 | FY21 | | --- | --- | --- | | **Financial assets** | | | | Cash and cash equivalents | 2,206 | 1,608 | | Trade and other receivables | 102 | 131 | | Other financial assets | 39 | - | | **Financial liabilities** | | | | Trade and other payables | - | (14) | | Interest bearing liabilities | (334) | (314) | | **Net exposure** | **2,113** | **1,411** | 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 Impact on profit/(loss) after tax US$M FY22 FY21 +100 16 15 –100 (13) (4) The sensitivity analysis assumes that the change in interest rates is effective from the beginning of the financial year and the fixed/ floating mix and balances are constant over the year. For the purpose of the sensitivity analysis, the decrease of 100 basis points is applied to the extent that the underlying interest rates do not fall below zero per cent. However, interest rates and the profile of the Group's financial assets and liabilities may not remain constant over the coming financial year and therefore such sensitivity analysis should be used with care. Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The functional currency of the Group’s operations is primarily the US dollar. The Group’s potential currency exposures comprise: – Translational exposure in respect of non-functional currency monetary items; and – Transactional exposure in respect of non-functional currency expenditure and revenues. Certain operating and capital expenditure is incurred by operations in currencies other than their functional currency. To a lesser extent, certain sales revenue is earned in currencies other than the functional currency of the operation, and certain exchange control restrictions may require funds to be maintained in currencies other than the operations functional currency. When required, the Group may enter into forward exchange contracts. The principal non-functional currencies to which the Group is exposed to are the Australian dollar, Brazilian real, Canadian dollar, Colombian peso, and South African rand. The following table shows the foreign currency risk arising from financial assets and liabilities, which are denominated in these currencies: Net financial assets/(liabilities) – by currency of denomination US$M FY22 FY21 Australian dollar (860) (847) Brazilian real (63) 58 Canadian dollar 17 19 Colombian peso (47) 9 South African rand 98 (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: Other comprehensive FY22 Profit/(loss) after income/(loss), US$M tax net of tax 10% movement in Australian dollar (60) - 10% movement in Brazilian real (6) - 10% movement in Canadian dollar - 1 10% movement in Colombian peso (5) - 10% movement in South African rand 10 - Other comprehensive FY21 Profit/(loss) after income/(loss), US$M tax net of tax 10% movement in Australian dollar (60) - 10% movement in Brazilian real (1) 7 10% movement in Canadian dollar 1 1 10% movement in Colombian peso 1 - 10% movement in South African rand (17) - SOUTH32 ANNUAL REPORT 2022 141 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 aluminium) 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 ratings. # *Standby arrangements and credit facilities* Details of the Group's major standby arrangement are as follows: | FY22 | Available | Lead | Unused | | --- | --- | --- | --- | | USD | | | | | Receiving credit facility^{(1)} | 1,400 | - | 1,400 | (1) The Group has an and each revolving credit facility which is a standby arrangement to the US commercial paper program. The facility was refinanced in December 2021 as if the year facility maturing in December 2024 with options to extend for up to a further two years by mutual agreement. On refinancing, the use of the facility reduced by US$18 million to US$6,000 million. 142 FINANCIAL REPORT # **19. Financial assets and financial liabilities** continued # **(a) Financial risk management objectives and policies** continued # **(i) Liquidity risk** continued # **Maturity profile of financial liabilities** The maturity profiles of financial liabilities, based on the contractual amounts, are as follows: | FY21 US$M | Carrying amount | Total | On demand or less than 1 year | 1 to 5 years | More than 5 years | | --- | --- | --- | --- | --- | --- | | Trade and other payables^{(1)} | 956 | 956 | 949 | 7 | - | | Senior unsecured notes | 689 | 700 | - | - | 700 | | Lease liabilities | 650 | 1,149 | 90 | 314 | 745 | | Other interest bearing liabilities | 488 | 507 | 362 | 85 | 60 | | Other financial liabilities - contingent consideration | 84 | 109 | - | 109 | - | | Other financial liabilities - derivative contracts | 6 | 6 | 6 | - | - | | **Total** | **2,873** | **3,427** | **1,407** | **515** | **1,505** | (1) Excludes current input taxes of US$60 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 | Carrying amount | Total | On demand or less than 1 year | 1 to 5 years | More than 5 years | | --- | --- | --- | --- | --- | --- | | Trade and other payables - financial guarantee contracts | 15 | 93 | 93 | - | - | | Trade and other payables^{(1)} - other | 754 | 754 | 752 | 2 | - | | Lease liabilities | 687 | 1,266 | 91 | 320 | 853 | | Other interest bearing liabilities | 520 | 545 | 372 | 98 | 75 | | Other financial liabilities - derivative contracts | 11 | 11 | 11 | - | - | | **Total** | **1,987** | **2,667** | **1,319** | **420** | **928** | (1) Excludes current input taxes of US$10 million included in other creditors. Refer to note 14 Trade and other payables. # **(ii) 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. SOUTH32 ANNUAL REPORT 2022 143 Notes to financial statements – Capital structure and financing continued # **19. Financial assets and financial liabilities continued** # **(a) Financial risk management objectives and policies continued** # **(ii) 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 re-evaluate of impairment of financial 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 | FY22 | | --- | --- | | At the beginning of the financial year | - | | Acquisition^{(1)} | 1,687 | | Interest accrued | 55 | | Net impairment | (26) | | Repayments | (68) | | **At the end of the financial year** | **1,648** | (1) Refer to note 9: Acquisition of equity accounted investments 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 ASA 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 | Assumptions US$ | | --- | --- | | Copper (US$/lb) | 2.70 to 4.08 | | Foreign exchange rates (US$ to CLP) | 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 | Face value | Carrying value | Impact on profit/loss/cutter tax | | | --- | --- | --- | --- | --- | | | | | Favourable | Unfavourable | | **Trade and other receivables** | | | | | | Loans to equity accounted investments | 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. SOUTH32 ANNUAL REPORT 2022 145 ### 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 Subsequent measurement Held at FVTPL 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. Amortised cost 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 Investments in equity instruments designated as FVOCI are subsequently measured at fair value. designated as FVOCI 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: | FY02 US$M | Note | Held at FVTPL | Designated as FVDCI | Amortized cost | Total | | --- | --- | --- | --- | --- | --- | | **Financial assets** | | | | | | | Cash and cash equivalents | 16 | - | - | 2,365 | 2,365 | | Trade and other receivables^{(1)} | 9 | 163 | - | 554 | 697 | | Loans to equity accounted investments | 9 | - | - | 7 | 7 | | Other financial assets: | | | | | | | Derivative contracts | | 1 | - | - | 1 | | **Total current financial assets** | | **144** | **-** | **2,926** | **3,070** | | Trade and other receivables^{(1)} | 9 | - | - | 13 | 13 | | Loans to equity accounted investments | 9 | - | - | 1,793 | 1,793 | | Other financial assets: | | | | | | | Investments in equity instruments designated as FVDCI | | - | 25 | - | 25 | | Vendor loan facility | | 39 | - | - | 39 | | **Total non-current financial assets** | | **39** | **25** | **1,806** | **1,870** | | **Total financial assets** | | **183** | **25** | **4,732** | **4,940** | | **Financial liabilities** | | | | | | | Trade and other payables^{(1)} | 14 | 20 | - | 929 | 949 | | Lease liabilities | 17 | - | - | 40 | 40 | | Other interest bearing liabilities | 17 | - | - | 362 | 362 | | Other financial liabilities: | | | | | | | Derivative contracts | | 6 | - | - | 6 | | **Total current financial liabilities** | | **26** | **-** | **1,331** | **1,357** | | Trade and other payables^{(1)} | 14 | - | - | 7 | 7 | | Senior unsecured notes | 17 | - | - | 689 | 689 | | Lease liabilities | 17 | - | - | 610 | 610 | | Other interest bearing liabilities | 17 | - | - | 126 | 126 | | Other financial liabilities: | | | | | | | Contingent consideration | | 84 | - | - | 84 | | **Total non-current financial liabilities** | | **84** | **-** | **1,432** | **1,516** | | **Total financial liabilities** | | **110** | **-** | **2,763** | **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$1 million included in other creditors. Refer to note 14 Trade and other payables. SOUTH32 ANNUAL REPORT 2022 147 Notes to financial statements – Capital structure and financing continued # **19. Financial assets and financial liabilities** continued # **(b) Accounting classification and fair value** continued | FY21 US$M | Note | Held at FVTPL | Designated as FVOCI | Amortised cash | Financial guarantee contracts | Total | | --- | --- | --- | --- | --- | --- | --- | | **Financial assets** | | | | | | | | Cash and cash equivalents | 16 | - | - | 1,613 | - | 1,613 | | Trade and other receivables^{(1)} | 9 | 120 | - | 165 | - | 485 | | Loans to equity accounted investments | 9 | - | - | 10 | - | 10 | | Other financial assets: | | | | | | | | Derivative contracts | | 9 | - | - | - | 9 | | Other investments held at FVTPL | | 6 | - | - | - | 6 | | **Total current financial assets** | | 135 | - | 1,988 | - | 2,123 | | Trade and other receivables^{(1)} | 9 | - | - | 10 | - | 10 | | Loans to equity accounted investments | 9 | - | - | 187 | - | 187 | | Other financial assets: | | | | | | | | Investments in equity instruments designated as FVOCI | | - | 121 | - | - | 121 | | **Total non-current financial assets** | | - | 121 | 197 | - | 318 | | **Total financial assets** | | 135 | 121 | 2,185 | - | 2,441 | | **Financial liabilities** | | | | | | | | Trade and other payables^{(2)} | 14 | 18 | - | 734 | 15 | 767 | | Lease liabilities | 17 | - | - | 37 | - | 37 | | Other interest bearing liabilities | 17 | - | - | 371 | - | 371 | | Other financial liabilities: | | | | | | | | Derivative contracts | | 11 | - | - | - | 11 | | **Total current financial liabilities** | | 29 | - | 1,142 | 15 | 1,186 | | Trade and other payables | 14 | - | - | 2 | - | 2 | | Lease liabilities | 17 | - | - | 650 | - | 650 | | Other interest bearing liabilities | 17 | - | - | 169 | - | 169 | | **Total non-current financial liabilities** | | - | - | 801 | - | 801 | | **Total financial liabilities** | | 29 | - | 1,943 | 15 | 1,987 | (1) Excludes current input taxes of US$10 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 10 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$650 million (FY21: US$ml), 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. FY21 | US$ | Level 1 | Level 2 | Level 3 | Total | | --- | --- | --- | --- | --- | | **Financial assets and liabilities** | | | | | | Trade and other receivables | - | 143 | - | 143 | | Trade and other payables | - | (30) | - | (30) | | Derivative contract assets | 1 | - | - | 1 | | Derivative contract liabilities | (6) | - | - | (6) | | Investments in equity instruments designated as FVOCI | 25 | - | - | 25 | | Vendor loan facility^{(1)} | - | - | 39 | 39 | | Contingent consideration | - | - | (84) | (84) | | **Total** | **20** | **123** | **(45)** | **98** | (1) The vendor loan facility relates to funding provided to a subsidiary of both as part of the Group's divestment of SAAI. Refer to note 16 (incontinued) operations. FY21 | US$ | Level 1 | Level 2 | Level 3 | Total | | --- | --- | --- | --- | --- | | **Financial assets and liabilities** | | | | | | Trade and other receivables | - | 120 | - | 120 | | Trade and other payables | - | (6) | (14) | (18) | | Derivative contract assets | 9 | - | - | 9 | | Derivative contract liabilities | (11) | - | - | (11) | | Investments in equity instruments designated as FVOCI | 55 | - | 66 | 121 | | Other investments held at FVTPL | - | 6 | - | 6 | | **Total** | **53** | **122** | **52** | **227** | #### Level 3 financial assets and liabilities The following table shows the movements in the Group's Level 3 financial assets and liabilities: | US$ | FY22 | FY23 | | --- | --- | --- | | At the beginning of the financial year | 52 | 35 | | Addition of financial assets/(liabilities) | (97) | (14) | | Derecognition of financial assets and financial liabilities | (5) | - | | Realised gains/(losses) recognised in the Consolidated Income Statement^{(1)} | - | (8) | | Unrealised gains/(losses) recognised in the Consolidated Income Statement^{(1)} | 52 | - | | Unrealised gains/(losses) recognised in the Consolidated Statement of Comprehensive Income^{(1)} | (47) | 39 | | **At the end of the financial year** | **(45)** | **52** | (1) Recognised in expenses excluding net finance costs in the Consolidated Income Statement. (2) Recognised in the financial assets reserves in the Consolidated Statement of Comprehensive Income. SOUTH32 ANNUAL REPORT 2022 149 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: | FY21 US$M | Carrying amount | Significant inputs | Profit/(loss) after tax | | | --- | --- | --- | --- | --- | | | | | Favourable | Unfavourable | | **Financial assets and liabilities** | | | | | | Other financial assets and liabilities held at FVTPL | (45) | Production volumes^{(1)} | 69 | (8) | | **Total** | **(45)** | | **69** | **(8)** | (1) Production volumes are based on future production estimates. | FY21 US$M | Carrying amount | Significant inputs | Profit/(loss) after tax | | Other comprehensive income/ loss), net of tax | | | --- | --- | --- | --- | --- | --- | --- | | | | | Favourable | Unfavourable | Favourable | Unfavourable | | **Financial assets and liabilities** | | | | | | | | Investments in equity instruments designated as FVOCI | 66 | Alumina price Aluminum price Foreign exchange rate | - | - | 35 | (39) | | Trade and other payables | (34) | Coal price Export volumes | 12 | (8) | - | - | | **Total** | **52** | | **12** | **(8)** | **35** | **(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** | | FY21 | | FY21 | | | --- | --- | --- | --- | --- | | | Shares | US$M | Shares | US$M | | **Share capital** | | | | | | At the beginning of the financial year | 4,674,538,013 | 13,597 | 4,846,267,883 | 13,943 | | Shares bought back and cancelled | (46,106,439) | (128) | (171,729,870) | (346) | | **At the end of the financial year** | **4,628,431,584** | **13,669** | **4,674,538,013** | **13,597** | | **Treasury shares** | | | | | | At the beginning of the financial year | (11,676,185) | (22) | (22,495,193) | (49) | | (Purchase)/sale of shares by ESOP Trusts | (6,379,986) | (22) | 262,531 | 3 | | Employee share awards vested | 6,588,266 | 12 | 10,556,477 | 24 | | **At the end of the financial year** | **(11,467,507)** | **(22)** | **(11,676,185)** | **(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 | FY22 | FY21 | | --- | --- | --- | | **Fees payable to the Group's auditor for assurance services** | | | | Audit and review of financial statements | 4,448 | 4,452 | | Other assurance services^{(1)} | 625 | 350 | | **Total auditor's remuneration** | **5,073** | **5,062** | (1) Mainly comprises assurance in respect of the Group's sustainability reporting. ### 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 | FY22 | FY21 | | --- | --- | --- | | Bonds^{(2)} | 31 | 35 | | Equities | 6 | 6 | | Cash and cash equivalents | 3 | 4 | | Other^{(3)} | 6 | 6 | | **Total** | **46** | **54** | (1) Comprises Priest Interest Government bonds of US$8 million (FY21: US$9 million), Index Limited Government bonds of US$20 million (FY21: US$22 million) and Corporate bonds of US$6 million (FY21: US$7 million). (2) Proximity 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. SOUTH32 ANNUAL REPORT 2022 151 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* | Long-Term Incentive Plan | FY19, FY20, FY21, FY22 | | --- | --- | | Deferred Short-Term Incentive Plan | FY20, FY21 | | Executive Transitional Award Plan | FY20, FY21, FY22 | | Management Share Plan | FY21(1) | (1) Awards granted on 7 December 2018, 4 December 2019, 4 December 2020 and 6 December 2021. (2) During FY21, Asian Economists, as a long-time Operating Officer, participated in the Management Share Plan and not the Long-Term Incentive Plan. Awards granted to eligible employees* | Management Share Plan | FY19, FY20, FY21, FY22 | | --- | --- | | AllShare Plan | 2019, 2020, 2021 | | Management Transitional Award Plan | FY19, FY20 | (1) Awards granted on 7 December 2018, 17 May 2019, 6 December 2019, 15 May 2020, 4 December 2020, 7 December 2020, 4 May 2021, 4 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. SOUTH32 ANNUAL REPORT 2022 153 ### 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: Risk-free interest rate Fair value at Share price at based on Expected life grant date grant date Expected government FY22 (US$) (1) (US$) volatility (%) (2) (in years) (1) bonds (%) (1) Recurring plans FY22 Long-Term Incentive Plan 1.65 2.60 30 4 0.85 FY21 Deferred Short-Term Incentive Plan 2.36 2.60 30 2 0.01 FY22 Management Share Plan – Retention rights 2.25 - 2.26 2.34 - 2.60 30 3 0.43 - 5.17 FY22 Management Share Plan – Performance rights 1.65 - 1.66 2.34 - 2.60 30 4 0.85 - 5.61 2021 AllShare Plan 2.36 - 2.57 2.34 - 2.60 30 2 - 3 0.01 - 5.17 Transitional plans FY22 Executive Transitional Award Plan 1.68 2.60 30 3 0.43 (1) Represents the range of grant date fair values, expected life, and risk-free interest rates based on the amount of rights granted on the ASX or the JSE during the year, and the variations in offer terms and grant dates of each plan where applicable. The risk-free interest rate and expected volatility does not materially impact service-based awards. (2) Expected volatility is based on the historical South32 Limited share price volatility at the grant date. Risk-free interest rate Fair value at Share price at based on Expected life grant date grant date Expected government FY21 (US$) (US$) volatility (%) (in years) bonds (%) Recurring plans FY21 Long-Term Incentive Plan 0.88 - 0.97 1.94 35 4 0.25 FY20 Deferred Short-Term Incentive Plan 1.76 1.94 35 2 0.07 FY21 Management Share Plan - Retention rights 1.69 - 1.74 1.94 - 1.95 35 3 0.16 - 5.17 FY21 Management Share Plan - Performance rights 0.97 - 1.01 1.94 - 1.95 35 4 0.25 - 5.77 2020 AllShare Plan 1.76 - 1.89 1.94 - 1.95 35 2 - 3 0.07 - 5.17 Transitional plans FY21 Executive Transitional Award Plan 0.98 1.94 35 3 0.16 154 FINANCIAL REPORT # **33. 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 | Nights of beginning of the year | Granted during the year | Vested during the year | Forfeited during the year | Lapsed during the year | Nights at end of the year | | --- | --- | --- | --- | --- | --- | --- | | **Recurring plans** | | | | | | | | FY18 Long-Term Incentive Plan | 5,414,194 | - | - | - | (5,414,194) | - | | FY19 Long-Term Incentive Plan | 4,325,579 | - | - | (180,082) | - | 4,145,497 | | FY20 Long-Term Incentive Plan | 5,267,666 | - | - | (501,907) | - | 4,765,759 | | FY21 Long-Term Incentive Plan | 8,221,730 | - | - | (1,264,381) | - | 6,957,349 | | FY22 Long-Term Incentive Plan | - | 2,743,629 | - | - | - | 2,743,629 | | FY19 Deferred Short-Term Incentive Plan | 1,071,486 | - | (1,071,486) | - | - | - | | FY20 Deferred Short-Term Incentive Plan | 1,134,803 | - | (273,623) | - | - | 852,180 | | FY21 Deferred Short-Term Incentive Plan | - | 907,232 | - | - | - | 907,232 | | FY18 Management Share Plan - Performance rights | 5,825,828 | - | - | - | (5,825,828) | - | | FY19 Management Share Plan - Retention rights | 1,422,901 | - | (1,422,901) | - | - | - | | FY19 Management Share Plan - Performance rights | 4,559,514 | - | - | (245,622) | - | 4,313,892 | | FY20 Management Share Plan - Retention rights | 1,912,107 | - | (222,563) | (187,116) | - | 1,502,428 | | FY20 Management Share Plan - Performance rights^{(1)} | 3,688,667 | 29,927 | - | (593,751) | - | 5,124,863 | | FY21 Management Share Plan - Retention rights^{(1)} | 3,364,250 | 19,935 | (170,219) | (511,533) | - | 2,702,433 | | FY21 Management Share Plan - Performance rights^{(1)} | 8,701,674 | 49,838 | - | (1,389,453) | - | 7,366,059 | | FY22 Management Share Plan - Retention rights | - | 2,404,086 | (28,207) | (150,947) | - | 2,224,932 | | FY22 Management Share Plan - Performance rights | - | 3,864,676 | - | (265,447) | - | 3,599,229 | | 2018 AllShare Plan | 1,312,900 | - | (1,304,825) | (8,075) | - | - | | 2019 AllShare Plan^{(1)} | 5,596,305 | 9,295 | (3,493,490) | (153,725) | - | 1,958,385 | | 2020 AllShare Plan^{(1)} | 6,783,400 | 13,600 | (178,400) | (503,400) | - | 6,115,300 | | 2021 AllShare Plan | - | 4,521,430 | (28,620) | (169,070) | - | 4,323,740 | | **Transitional plans** | | | | | | | | FY19 Executive Transitional Award Plan | 81,967 | - | - | - | (81,967) | - | | FY20 Executive Transitional Award Plan | 129,283 | - | - | - | - | 129,283 | | FY21 Executive Transitional Award Plan | 154,702 | - | - | - | - | 154,702 | | FY22 Executive Transitional Award Plan | - | 195,128 | - | - | - | 195,128 | | FY18 Management Transitional Award Plan | 622,195 | - | - | - | (622,195) | - | | FY19 Management Transitional Award Plan | 284,023 | - | (52,640) | (41,324) | - | 190,959 | | FY20 Management Transitional Award Plan | 143,183 | - | - | (53,513) | - | 89,670 | | **Total awards** | **72,008,257** | **13,758,776** | **(8,246,974)** | **(6,214,366)** | **(11,944,184)** | **61,361,539** | (1) Retrospective grants related to prior year plans. SOUTH32 ANNUAL REPORT 2022 155 Notes to financial statements – Other notes continued # **34. Contingent assets and liabilities** Contingent assets and liabilities not otherwise provided for in the consolidated financial statements are categorised as arising from: | US$M | FY22 | FY21 | | --- | --- | --- | | Actual or potential litigation | 427 | 427 | | **Total contingent liabilities** | **427** | **427** | | Actual or potential litigation | 156 | - | | **Total contingent assets** | **156** | **-** | 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. # **35. 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: | Significant subsidiaries | Country of incorporation | Principal activity | Effective interest % | | | --- | --- | --- | --- | --- | | | | | FY22 | FY21 | | African Metais (Pty) Ltd | South Africa | Investment holding company | 100 | 100 | | Arizona Minerals Inc. | United States | Exploration and development | 100 | 100 | | Cerro Matoso SA | Colombia | Integrated latente ferroncial mining and smelting complex | 99.9 | 99.9 | | Dendrobium Coal Pty Ltd | Australia | Metalurgical coal mine | 100 | 100 | | Endeavour Coal Pty Ltd | Australia | Metalurgical coal mine | 100 | 100 | | Hillside Aluminium (Pty) Ltd | South Africa | Aluminum smelter | 100 | 100 | | Illawarra Coal Holdings Pty Ltd | Australia | Investment holding company | 100 | 100 | | Illawarra Services Pty Ltd | Australia | Coal washery, rail and road transportation | 100 | 100 | | South32 Finance 1 B.V | Netherlands | Financing company | 100 | - | | South32 Finance 2 B.V | Netherlands | Financing company | 100 | - | | South32 Aluminium (Holdings) Pty Ltd | Australia | Investment holding company | 100 | 100 | | South32 Aluminium (RAA) Pty Ltd | Australia | Interest in a joint operation | 100 | 100 | | South32 Aluminium (Worsley) Pty Ltd | Australia | Interest in a joint operation | 100 | 100 | | South32 Cannington Pty Ltd | Australia | Silver, lead and zinc mine | 100 | 100 | | South32 Eagle Downs Pty Ltd | Australia | Interest in a joint operation | 100 | 100 | | South32 Group Operations Pty Ltd | Australia | Administrative, management and support services | 100 | 100 | | South32 Investment 1 B.V | Netherlands | Interest in a joint operation | 100 | 100 | | South32 Marketing Pte Ltd | Singapore | Sales, marketing and distribution | 100 | 100 | | South32 Minerals SA | Brazil | Interest in a joint operation | 100 | 100 | | South32 SA Investments Ltd | United Kingdom | Investment holding company | 100 | 100 | | South32 SA Ltd | South Africa | Administrative, management and support services | 100 | 100 | | South32 Sierra Gorda SpA | Chile | Investment holding company | 100 | - | | South32 Treasury Ltd | Australia | Financing company | 100 | 100 | | South32 USA Exploration Inc. | United States | Exploration | 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 | Country of incorporation | Principal activity | Reporting date | Acquisition date | Ownership interest % | | | --- | --- | --- | --- | --- | --- | --- | | | | | | | FY22 | FY21 | | **Australia** | | | | | | | | Manganese^{(1)} | Australia | Manganese ore mine | 30 June 2022 | 8 May 2015 | 60 | 60 | | South Africa | | | | | | | | Manganese^{(1)} | South Africa | Manganese ore mines | 30 June 2022 | 3 February 2015 | 60 | 60 | | | | | 31 December 2022^{(2)} | | | | | Sierra Gorda^{(1)} | Chile | Copper mine | | 22 February 2022^{(4)} | 45 | - | (1) Australia Manganese consists of an investment in Grotta Eylem Mining Company, Pty Ltd (SGMCO). (2) The Group hands a list per cent interest in Samuncor Holding (Pty) Ltd (Samuncor), Samuncor Industry owns 74 per cent of Hatsotk Manganese Mines (Pty) Ltd (HMN), which gives the Group its interest ownership interest of 44.6 per cent. The remaining 20 per cent of HMN is owned by B BREE entities, of which 17 per cent of the interests were acquired using Jender Tractors with the same resupply via distributions attributable to these parties, pro rata to their share in HMN. Until these loans are repaid, the Group's interest in HMN is accounted for at 56.6 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 20. Acquisition of equity accounted investments. A reconciliation of the carrying amount of the equity accounted investments is set out below: | US$M | FY22 | FY21 | | --- | --- | --- | | At the beginning of the financial year | 380 | 460 | | Share of profit/(loss)^{(1)} | 272 | 133 | | Other comprehensive income/(loss), net of tax | (3) | (3) | | Dividends received from equity accounted investments | (224) | (197) | | Acquisition of equity accounted investments^{(1)} | 45 | - | | Disposal of a discontinued operation^{(1)} | - | (13) | | **At the end of the financial year** | **470** | **380** | (1) Includes a share of profit/(loss) relating to a discontinued operation of US$M (FY22: US$88 million). Refer to note 18. Discontinued operation. (2) Refer to note 19. Acquisition of equity accounted investments. (3) Refer to note 19. Discontinued operation. Carrying amount of equity accounted investments | US$M | FY22 | FY21 | | --- | --- | --- | | Australia Manganese | 143 | 106 | | South Africa Manganese | 180 | 189 | | Sierra Gorda^{(1)} | 30 | - | | Individually immaterial^{(1)} | 117 | 85 | | **Total** | **470** | **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 Samuncor Marketing Pte Ltd (60 per cent), MRA (22 per cent) and Port Hembla Coal Terminal Ltd (16.7 per cent) in FY22 and Samuncor Marketing Pte Ltd (60 per cent) and Port Hembla Coal Terminal Ltd (16.7 per cent) in FY21. Share of profit/(loss) of equity accounted investments | US$M | FY22 | FY21 | | --- | --- | --- | | Australia Manganese | 211 | 115 | | South Africa Manganese | 31 | 20 | | Sierra Gorda | 30 | - | | Individually immaterial^{(1)} | - | (2) | | **Total** | **272** | **133** | (1) Individually immaterial consists of investments in Samuncor Marketing Pte Ltd (60 per cent) of US$1 million, MRA (22 per cent) of US$1 million and Port Hembla Coal Terminal Ltd (16.7 per cent) of US$1 million in FY22 and Samuncor Marketing Pte Ltd (60 per cent) of US$1 million, Port Hembla Coal Terminal Ltd (16.7 per cent) of US$1 million and Richards Bay Coal Terminal Pty Ltd (21.1 per cent) of US$88 million in FY21. The share of profit/(loss) from Richards Bay Coal Terminal Pty Ltd in FY21 was included in the disposal of a discontinued operation. Refer to note 33. Discontinued operation. SOUTHS2 ANNUAL REPORT 2022 157 Notes to financial statements – Other notes continued # **26. Equity accounted investments continued** The following table summarises the financial information relating to each significant equity accounted investment: | FY21 US$M | Joint ventures | | | | --- | --- | --- | --- | | | Australia Manganese | South Africa Manganese | Sierra Leone | | **Reconciliation of the carrying amount of equity accounted investments** | | | | | Current assets | 328 | 258 | 485 | | Non-current assets | 836 | 516 | 4,252 | | Current liabilities | (260) | (81) | (367) | | Non-current liabilities | (665) | (290) | (4,302) | | **Net assets – 100%** | **239** | **403** | **67** | | Net assets – the Group's share | 143 | 180 | 30 | | **Carrying amount of equity accounted investments** | **143** | **180** | **30** | | **Reconciliation of share of profit/(loss) of equity accounted investments** | | | | | Revenue – 100% | 1,239 | 602 | 535 | | Profit/(loss) after tax – 100% | 351 | 59 | 67 | | Profit/(loss) after tax – the Group's share | 211 | 31 | 30 | | **Share of profit/(loss) of equity accounted investments** | **211** | **31** | **30** | | **Other balances of equity accounted investments presented on a 100% basis** | | | | | Cash and cash equivalents^{(1)} | - | 27 | 154 | | Non-current financial liabilities (excluding trade and other payables and provisions) | (172) | (19) | (4,177) | | Depreciation and amortisation | (136) | (26) | (129) | | Interest income | - | 3 | - | | Interest expense | (30) | (13) | (139) | | Income tax (expense)/benefit (excluding royalty related tax) | (208) | (63) | (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 | Joint ventures | | | --- | --- | --- | | | Australia Manganese | South Africa Manganese | | **Reconciliation of the carrying amount of equity accounted investments** | | | | Current assets | 271 | 237 | | Non-current assets | 812 | 539 | | Current liabilities | (233) | (89) | | Non-current liabilities | (673) | (277) | | **Net assets – 100%** | **177** | **410** | | Net assets – the Group's share | 106 | 190 | | Consolidation adjustments | - | (1) | | **Carrying amount of equity accounted investments** | **106** | **189** | | **Reconciliation of share of profit/(loss) of equity accounted investments** | | | | Revenue – 100% | 1,096 | 524 | | Profit/(loss) after tax – 100% | 192 | 37 | | Profit/(loss) after tax – the Group's share | 115 | 20 | | **Share of profit/(loss) of equity accounted investments** | **115** | **20** | | **Other balances of equity accounted investments presented on a 100% basis** | | | | Cash and cash equivalents^{(1)} | - | 26 | | Non-current financial liabilities (excluding trade and other payables and provisions) | (222) | (28) | | Depreciation and amortisation | (133) | (26) | | Interest income | - | 3 | | Interest expense | (23) | (24) | | Income tax (expense)/benefit (excluding royalty related tax) | (179) | (8) | (1) South Africa Manganese cash and cash equivalents include US$18 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: Effective interest % Significant joint operations Country of operation Principal activity Acquisition date FY22 FY21 Base metals exploration and development Ambler Metals United States option 11 February 2020 50 50 Brazil Alumina Brazil Integrated bauxite mine and alumina refinery 3 July 2014 36 36 Brazil Aluminium Brazil Aluminium smelter 3 July 2014 40 40 | Eagle Downs | | | Metallurgical coal exploration and | | | | --- | --- | --- | --- | --- | --- | | Metallurgical Coal Australia | | | development option 14 September 2018 50 50 | | | | | (1) | | | (2) | | | Mozal Aluminium | | Mozambique Aluminium smelter 27 March 2015 | | | 63.7 47.1 | (1) Worsley Alumina Australia Integrated bauxite mine and alumina refinery 8 May 2015 86 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. SOUTH32 ANNUAL REPORT 2022 159 Notes to financial statements – Other notes continued # **28. Key management personnel** # **(a) Key management personnel compensation** | US$'000 | FY22 | FY21 | | --- | --- | --- | | Short term employee benefits | 6,321 | 6,942 | | Post-employment benefits | 137 | 182 | | Other long-term benefits | 293 | 286 | | Termination benefits | 628 | - | | Share-based payments | 4,764 | 4,611 | | **Total** | **11,943** | **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$nil). # **29. Related party transactions** # **(a) Parent entity** The ultimate parent entity of the Group is South32 Limited, which is domiciled and incorporated in Australia. # **(b) Subsidiaries, joint ventures and associates** The interests in subsidiaries, joint ventures and associates are disclosed in notes 25 and 26. # **(c) Key management personnel** The compensation of, and loans to, key management personnel are disclosed in note 28. # **(d) Pension and other post-retirement obligations** The pension and other post-retirement obligations are disclosed in note 22. # **(e) Transactions with related parties** | Transactions with related parties | Joint ventures | | Associates | | | --- | --- | --- | --- | --- | | | FY22 | FY21 | FY22 | FY21 | | US$'000 | | | | | | Sales of goods and services | 360,674 | 239,670 | 3,961 | 4,148 | | Purchases of goods and services | - | 2 | 53,107 | 51,489 | | Interest income | 60,661 | 4,912 | - | - | | Dividend income | 224,424 | 197,164 | - | - | | Interest expense | 2,109 | 1,816 | - | - | | Increase/(decrease) in short-term financing arrangements | 49,530 | 1,000 | - | - | | Increase/(decrease) in loans with related parties | 1,619,366 | 10,800 | (17,237) | (5,759) | | Outstanding balances with related parties | Joint ventures | | Associates | | | --- | --- | --- | --- | --- | | | FY22 | FY21 | FY22 | FY21 | | US$'000 | | | | | | Trade and sundry amounts owing to related parties | 748 | 206 | 973 | 176 | | Other amounts owing to related parties^{(1)} | 234,530 | 285,000 | - | - | | Trade and sundry amounts owing from related parties | 30,114 | 31,539 | 769 | 318 | | Loan amounts owing from related parties^{(1)(2)} | 1,750,166 | 130,800 | 49,419 | 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 associated investments. Interest is paid based on the three-month London Inter-Bank Offer Rate less a margin of 0.66 per cent and the one-month unmanufacturing Inter-Bank Agreed Rate. (2) Loan amounts owing from (US$100) include an interest bearing loan which is repayable by 1 January 2024. Interest is post-licensed 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$2,373 million, incurs interest at 8 per cent per annum and is repayable by 10 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 | FY22 | | --- | --- | | **Purchase consideration** | | | Cash | 175 | | Deferred consideration^{(1)} | 25 | | **Total consideration** | **200** | | **Assets acquired and liabilities assumed** | | | Cash and cash equivalents | 62 | | Trade and other receivables | 6 | | Inventories | 62 | | Property, plant and equipment | 133 | | Intangible assets | 3 | | Trade and other payables | (35) | | Provisions | (19) | | **Total identifiable net assets at fair value** | **209** | | Gain on bargain purchase^{(2)} | (9) | | **Purchase consideration transferred** | **200** | | **Cash outflow on acquisition** | | | Direct costs relating to the acquisition^{(3)} | 176 | | Net cash acquired | (62) | | **Net consolidated cash outflow^{(4)}** | **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 represented 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. SOUTH32 ANNUAL REPORT 2022 161 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$700 million of senior unsecured notes, with the Group utilising those cash proceeds, together with cash on hand, to fully repay amounts drawn down under the acquisition bridge facility. Refer to note 17 Interest bearing liabilities for the key terms of the issuance. The joint arrangement is classified as a joint venture as the activities are primarily designed to provide joint venture parties with rights to the net assets of the arrangement. The assets acquired include purchased credit-impaired loan receivables accounted for under AASB 9 Financial Instruments and an equity accounted investment accounted for under AASB 128 Investments in associates and joint ventures. | US$ | ₹'022 | | --- | --- | | **Purchase consideration** | | | Direct costs relating to the acquisition^{(1)} | 1,421 | | Contingent consideration payable^{(2)} | 116 | | **Total consideration** | **1,537** | | **Assets acquired and liabilities assumed** | | | Loans to equity accounted investments | 1,687 | | Equity accounted investments | - | | Current tax payable | (181) | | Other | 1 | | **Net assets acquired** | **1,537** | | **Cash outflow on acquisition** | | | Direct costs relating to the acquisition^{(1)} | 1,421 | | Net cash acquired | (1) | | **Net consolidated cash outflow^{(3)}** | **1,420** | (1) Inclusive of acquisition related transaction costs and other directly attributable costs of US$10 million. (2) Contingent consideration recognised represents the present value of expected future cash flow payable. The payment is contingent on the average realized copper price and production levels for the first 3 years joint 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 realized copper price exceeds the specified copper price thresholds. The maximum unobstructed value of the contingent consideration payable is US$500 million and the minimum value is US$10. (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 | FY22 | | --- | --- | | Purchase consideration | | | Direct costs relating to the acquisition | 10 | | Contingent consideration payable(1) | 16 | | Total consideration | 26 | | Assets acquired and liabilities assumed | | | Equity accounted investments | 45 | | Derecognition of other financial assets(2) | (19) | | Net assets acquired | 26 | | Cash outflow on acquisition | | | Direct costs relating to the acquisition | 10 | | Net consolidated cash outflow(3) | 10 | (1) Contingent consideration recognised represents the present value of a fixed amount with a probability factor applied. The maximum unaccounted value of the contingent consideration is US$10 million and the minimum value is US$40. The amount becomes payable by the Group if agreed expansion milestones are met. (2) The Group's existing 14.8 per cent interest, which was previously classified as an investment in equity instruments designated as FVOCI, was derecognised. (3) Cash outflow is presented as: Acquisition of equity accounted investments within the Consolidated Cash Flow Statement. ### 32. Parent entity information #### (a) Summary financial information The individual financial statements for the parent entity, South32 Limited, show the following aggregate amounts: | US$M | FY22 | FY23 | | --- | --- | --- | | Result of parent entity | | | | Profit/(loss) after tax for the year | 3,879 | (818) | | Total comprehensive income/(loss) | 3,879 | (818) | | Financial position of parent entity at year end | | | | Current assets | 652 | 30 | | Total assets | 13,006 | 10,825 | | Current liabilities | 100 | 1,003 | | Total liabilities | 108 | 1,014 | | Net assets | 13,898 | 9,811 | | Total equity of the parent entity | | | | Share capital | 13,469 | 13,597 | | Treasury shares | (28) | (17) | | Other reserves | 24 | 28 | | Profit reserve(2) | 4,823 | 1,604 | | Accumulated losses | (5,390) | (5,401) | | Total equity | 13,898 | 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$1,400 million. The parent entity is party to a Deed of Support with the effect that the Company guarantees debts in respect of South32 Group Operations Pty Ltd. SOUTH32 ANNUAL REPORT 2022 163 Notes to financial statements – Other notes continued # **33. Discontinued operation** A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as discontinued, the comparative income statement is restated as if the operation had been discontinued from the start of the comparative period. On 6 November 2019, the Group announced a binding conditional agreement for the sale of its shareholding in SAEC to a wholly-owned subsidiary of Senti and two trusts which will acquire and hold equity on behalf of employees and communities. The transaction was subject to a number of material conditions which precluded the classification of SAEC as held for sale until the conditions were satisfied on 15 May 2021. On 1 June 2021, the Group completed the sale of its shareholding in SAEC to Senti and two trusts for the benefit of employees and communities. The discontinued operation represents the entire SAEC operating segment which consists of: the Khutala colliery, the Klipspruit colliery, the Wolvekrans Middelburg Complex and other SAEC corporate assets. # **(a) Results of the discontinued operation** | US$M | FY21 | | --- | --- | | Revenue | | | Group production | 735 | | Third party products and services | 126 | | | 861 | | Other income | 68 | | Expenses excluding net finance costs | (1,049) | | Loss on disposal of the discontinued operation | (159) | | Share of profit/(loss) of equity accounted investments | (8) | | **Profit/(loss) from the discontinued operation** | **(297)** | | Finance expenses | (52) | | Finance income | 9 | | **Net finance costs** | **(43)** | | **Profit/(loss) before tax from the discontinued operation** | **(360)** | | Income tax (expense)/benefit | 3 | | **Profit/(loss) after tax from the discontinued operation** | **(337)** | | Total comprehensive income/(loss) from the discontinued operation attributable to the equity holders of South32 Limited | (337) | | --- | --- | | Basic EPS (cents) | (7.1) | | Diluted EPS (cents) | (7.1) | # **(b) Cash flows from the discontinued operation** | US$M | FY21 | | --- | --- | | Net cash flows from operating activities | (180) | | Net cash flows from investment activities | (149) | | Net cash flows from financing activities | (3) | | **Net decrease in cash and cash equivalents** | **(332)** | # **(c) Effect of disposal on the financial position of the Group** | US$M | FY21 | | --- | --- | | Cash and cash equivalents | (58) | | Trade and other receivables | (235) | | Other financial assets | (167) | | Inventories | (164) | | Property, plant and equipment | (623) | | Intangible assets | (14) | | Equity accounted investments | (13) | | Trade and other payables | 122 | | Interest bearing liabilities | (144) | | Provisions | 1,125 | | Deferred income | 1 | | Deferred tax liabilities | 23 | | **Decrease in net assets** | **(147)** | | Consideration, net of transaction costs, satisfied in cash | (12) | | --- | --- | | Cash and cash equivalents disposed of | (58) | | **Net consolidated cash outflow** | **(70)** | 164 FINANCIAL REPORT ### 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. SOUTH32 ANNUAL REPORT 2022 165 ### 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. SOUTH32 ANNUAL REPORT 2022 167 ### 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 The Financial Report comprises: Company). • Consolidated balance sheet as at 30 June 2022; In our opinion, the accompanying Financial Report of the Company • Consolidated income statement, Consolidated statement of is in accordance with the Corporations Act 2001, including: comprehensive income, Consolidated statement of changes in • giving a true and fair view of the Group’s financial position as at equity and Consolidated cash flow statement for the year then 30 June 2022 and of its financial performance for the year ended ended; on that date; and • Notes including a summary of significant accounting policies; and • complying with Australian Accounting Standards and the • Directors’ declaration. Corporations Regulations 2001. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion 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: Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial • Asset valuation; Report of the current period. • Closure and rehabilitation provision; and These matters were addressed in the context of our audit of the • Acquisition of Sierra Gorda. 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 The assessment of the existence of impairment or reversal indicators Our procedures included: and impairment testing of CGUs, where required, was a key audit We assessed the Group’s view of the indicators leading to impairment matter given the size of property, plant and equipment, intangible and reversal testing for the Eagle Downs Metallurgical Coal and Brazil assets and equity accounted investments, and the sensitivity of Aluminium CGU’s. We recalculated the impairment charge and valuations to certain assumptions. impairment reversal and compared to the amounts recognised. Historically the Group has impaired the carrying value of several CGUs We assessed the integrity and consistency of the models used for to recoverable amount. Combined with the volatility in both commodity impairment testing and assessment of impairment or reversal and foreign exchange markets, there is an increased sensitivity of the indicators on a sample basis, including the accuracy of the underlying carrying value of the Group’s CGUs to potential impairment and formulas and consistency of modelling to the prior year. reversal. We assessed the scope, objectivity and competence of the Group’s The Group has: experts responsible for preparation of the resource and reserve • Recorded an impairment charge of $183m in the Eagle Downs estimates and compared these estimates to those incorporated in the Metallurgical Coal CGU, resulting from the potential divestment of life of operation and project plans where applicable. the operation; and We compared the forecast operating cash flows, production volumes, • Recorded an impairment reversal of $42m in the Brazil Aluminium capital expenditure and reserve and resource estimates contained in CGU, resulting from the decision to participate in a restart of the the models to the life of operation and project plans incorporating the Alumar aluminium smelter. approved budgets. We assessed the accuracy of the Group’s previous These further increased our audit effort in this key audit area. forecasts to assist with this assessment. The Group uses sophisticated models to perform their assessment of Using our knowledge of the Group and our industry experience, and impairment or reversal indicators and impairment testing, where considering the Group’s strategy and past performance, we assessed required. Impairment testing was performed on the following CGU’s: the feasibility of the forecast operating cash flows, capital expenditure and production volumes. • Hillside Aluminium due to the presence of goodwill; Working with our valuation specialists, and considering the risk factors • Eagle Downs Metallurgical Coal for which the presence of an specific to the Group, we compared the discount rates to publicly impairment indicator was identified; and available market data for comparable entities. We also compared • Brazil Aluminium for which the presence of an impairment reversal foreign exchange rates to published views of market commentators. indicator was identified. We compared forecast commodity prices to published views of market The models are developed in-house, and use life of operation and commentators on future trends and long-term supply agreements. project plans, approved budgets, and a range of external sources as inputs to the assumptions. Complex modelling using forward-looking We compared carbon assumptions to locally enacted country specific assumptions tends to be prone to greater risk for potential bias, error schemes and longer term published industry views. and inconsistent application. These conditions necessitate additional We considered the sensitivity of the models by varying key scrutiny by us, in particular to address the objectivity of inputs, and assumptions, such as forecast commodity prices, foreign exchange their consistent application. rates, carbon pricing, risking applied to future development and We focused on the significant forward-looking assumptions the Group discount rates, within a reasonably possible range, to identify those applied in their models, including: CGUs at higher risk of impairment or reversal and to focus our further procedures. • Forecast commodity prices and foreign exchange rates – the current economic climate has resulted in significant volatility in For Eagle Downs Metallurgical Coal we considered other information forecast commodity prices across the Group. The Group’s models included in the fair value assessment including other market are sensitive to small changes in these price assumptions, as participant views on the assets value. well as changes to foreign exchange rates, particularly the South We assessed the disclosures in the Financial Report using our African Rand, Brazilian Real and the Australian Dollar, increasing understanding obtained from our testing and against the requirements forecasting risk; of the accounting standards. • 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. SOUTH32 ANNUAL REPORT 2022 169 ### 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 Our procedures included: the size of the provision and the judgement we used to audit the We assessed the scope, objectivity and competence of the Group’s provision estimates across the multiple sites the Group operates. internal and external experts to provide rehabilitation cost estimates. Closure and rehabilitation activities are governed by Group policies We evaluated key assumptions used in the closure and rehabilitation based on legal and regulatory requirements, which differ across provision, relevant to the jurisdictions of the sites the Group operates, multiple jurisdictions. by: We focused on the following assumptions the Group applied in • Comparing the nature and extent of activities costed to the determining the provisions in accordance with the closure and Group’s closure and rehabilitation plans and relevant regulatory rehabilitation plans: requirements; • Nature and extent of activities required across the multiple • Comparing the timing of closure and rehabilitation activities to sites, including the magnitude of possible contamination and the Group’s resources and reserve estimates and the expected disturbance, which are inherently challenging to assess; production profile contained in the life of operation plans; • Timing of when closure and rehabilitation will take place, which • Comparing a sample of cost estimates of the activities, increases estimation uncertainty given the unique nature of each incorporating risk adjustments, to historical experience and site and long timeframes involved; underlying documentation, the Group’s external expert estimates, • Forecast cost estimates incorporating historical experience, and against our knowledge of the Group and its industry; which may not be a reliable predictor of such costs, and risk • Working with our sustainability closure specialists to assess adjustments. The Group engages external experts periodically to the reasonableness and completeness of closure activities on a assist in their determination of these estimates; and sample basis; and • Economic assumptions, including country specific discount rates, • Working with our valuation specialists, comparing country specific which are complicated in nature. 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 Our procedures included: in five holding companies which indirectly hold a 45% interest in, and • We evaluated the asset acquisition accounting by the Group provide funding for Sierra Gorda SCM. Consideration of $1,537m against the requirements of the accounting standards; resulted in the recognition of Loans to equity accounted • We read the underlying transaction agreements to understand investments and Current tax payable. the terms of the acquisition and nature of the assets and liabilities This transaction is considered to be a key audit matter due to the: acquired; • Size of the acquisition having a significant impact on the Group’s • We assessed the accuracy of the calculation and measurement financial statements; of consideration paid to acquire Sierra Gorda based on the • Group’s judgement and complexity relating to the determination underlying transaction agreements and the Group’s bank of asset acquisition accounting, and allocations made to acquired statements; assets and liabilities, in particular Loans to equity accounted • We challenged the forecast cash flows assumptions for the entity investments; acquired, which forms the basis of the calculation of effective • Group’s forecast cashflow model used to determine the Loan interest rate and contingent consideration fair value, including: effective interest rate on acquisition is complex and sensitive to • Working with our valuation specialists, we evaluated the changes in key assumptions. This drives additional audit effort valuation methodology used by the Group; specifically on the feasibility of these key assumptions and • We assessed the feasibility of assumptions and consistency consistency of application to the Group’s strategy; of application to industry trends and expectations. We used • Estimate of the fair value of the contingent consideration. We our knowledge of the Group and the entity acquired, past focused on the forecast cash flow assumptions, which are performance, and our industry experience; forward-looking, inherently uncertain and tend to be prone to • We compared forecast commodity prices and foreign greater risk for potential bias; and exchange rates to published views of market commentators on • Re-estimation of forecast cashflows at 30 June 2022 due to the future trends; and update of key assumptions and forecasts. This resulted in a loss • We assessed changes in forecast cashflows between on purchased credit-impaired receivable of $26m and a gain of acquisition date and 30 June 2022. We focused on obtaining $48m on contingent consideration payable. supporting evidence to support such changes representing The key assumptions we focused on in the calculation of forecast new or updated information subsequent to acquisition. cashflows included production guidance, forecast commodity We assessed the adequacy of disclosures in the financial report prices, forecast operating and capital expenditure, discount rates using our understanding obtained from our testing and against the and reserve and resource estimates. requirements of the accounting standards. We involved our valuation specialists to supplement our senior audit team members in assessing this key audit matter. 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 2002; - 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.aaasb.gov.au/admin/file/content/2020-3/art_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 KPMG Graham Hogg Partner Perth 8 September 2022 SOUTH32 ANNUAL REPORT 2022 171 ## RESOURCES ## AND RESERVES Information 173 Competent Persons 174 Accompanying tables 175 172 RESOURCES AND RESERVES ### Resources and Reserves | As required by Chapter 5 of the | At a glance - Resources and Reserves (as at 30 June 2022) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Australian Securities Exchange (ASX) | | | | | | Total Mineral/ | | | | | Total Ore/Coal | Reserve Life | | | Coal Resource | | | Listing Rules, we report Mineral | | | | | (1) | | | | | Operations and development options | Reserve (Mt) | | Years | | | (Mt) | Resources and Ore Reserves (including Worsley Alumina 227 13 1,090 Coal Resources and Coal Reserves) in Brazil Alumina (MRN) 50 4.0 458 accordance with the 2012 Edition of the Cannington 17 7.0 69 Australasian Code for Reporting of Taylor 138 Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Clark 55 Arctic 37 In this report, information relating to Bornite 148 Mineral Resources and Ore Reserves is Cerro Matoso 27 7.0 322 based on, and fairly represents, information Australia Manganese 41 3.9 147 and supporting documentation prepared (2) South Africa Manganese 102 42 213 by our Competent Persons. (2)(3) Illawarra Metallurgical Coal 104 24 1,200 A Competent Person is defined in the Eagle Downs 1,140 JORC Code. They must have a minimum (1) Scheduled extraction period in years for the Total Ore Reserves in the approved Life of Operation Plan. five years of relevant experience in the (2) Reserve Life for Illawarra Metallurgical Coal and South Africa Manganese is reported as the life of scheduled Coal/ style of mineralisation or type of deposit Ore Reserves for Bulli and Wessels respectively. The Reserve Life for the remaining operations are stated in the following detailed disclosures. under consideration and the activity being (3) Coal Reserves in this table are presented as Marketable Coal Reserves. Process recoveries are reported in the undertaken. following detailed disclosures for each coal operation. Each of our Competent Persons has given may include areas where additional Our governance arrangements consent to the inclusion of the information approvals are required, and it is expected and internal controls in this report in the form and context in that such approvals will be obtained within We have internal standards and which it appears. You can find more details the timeframe needed for the current governance arrangements that cover on each of their professional affiliations, production schedule. regulatory requirements for public employer and areas of accountability on reporting. To ensure correct and accurate page 174. Unless we state otherwise, all Foreign estimate public reporting, our governance processes Competent Persons listed are full-time In the market announcement “South32 to are managed by the Resource and Reserve employees at South32, or at one of our Acquire a 45 per cent Interest in the Sierra Governance function in coordination with related entities. Gorda Copper Mine” dated 14 October the Company Secretariat function. 2021, we reported on the estimates of We report Mineral Resources and Ore mineral resources and mineral reserves Our comprehensive review and audit Reserves in 100 per cent terms and for the Sierra Gorda copper mine. These program is aimed at assuring our Mineral represent estimates as at 30 June 2022. estimates of mineral resources and mineral Resource and Ore Reserve estimates. This Our Mineral Resource estimations include reserves are foreign estimates under the includes: Measured and Indicated Mineral Resources ASX Listing Rules and are not reported which, after the application of all Modifying – Annual review of Mineral Resources and in accordance with the JORC Code. We Factors, and development of a mine plan, Ore Reserves declarations and reports; completed the acquisition on 22 February have been classified as Ore Reserves. – Annual review of reconciliation 2022 and in accordance with ASX Listing performance metrics for operating We report all quantities as dry metric Rule 5.14.1, our technical team is reviewing mines; tonnes, unless stated otherwise. available information in collaboration with the Sierra Gorda operational team to verify – Periodic internal mine planning and Ore It is important to note that Mineral the foreign resource and reserve estimates, Reserve audits; and Resources and Ore Reserves are with the intention of enabling these – Independent audits of Exploration estimations, not precise calculations. estimates to be reported in accordance Results, Mineral Resources or Ore We have rounded tonnes and grade with the JORC Code. Reserves that are new or have materially information to reflect the relative changed. | uncertainty of the estimate, which is why | We are not in possession of any new | | | --- | --- | --- | | minor computational differences may be | information or data relating to the foreign | In FY22, we undertook five independent | | present in the totals. | estimate that materially impacts on the | assurance audits of Exploration Results, | | | reliability of the estimates or our ability | Mineral Resource or Ore Reserve estimates | Our long-range forecasts are the basis for to verify the foreign estimates as Mineral and four internal mine planning and Ore the commodity prices and exchange rates Resources or Ore Reserves in accordance Reserve assurance audits. The frequency used to estimate the economic viability with the JORC Code. We confirm that the and scope of the audits are generally of Ore Reserves. Our planning processes information contained in our 14 October a function of the perceived risks and consider the impacts of climate change on 2021 market announcement in relation uncertainties associated with a particular our Ore Reserves, including assessments of to these foreign estimates continues to Mineral Resource and Ore Reserve. The operating costs and the impact of extreme apply and has not materially changed. increase in frequency of audits in FY22 is weather events on the expectation of Competent Persons have not done associated with activities we deferred in economic extraction. | | sufficient work to classify the foreign | FY21 due to COVID-19, new opportunities | | --- | --- | --- | | Our Ore Reserves are within existing | estimates as Mineral Resources or Ore | we explored and projects we reviewed | | permitted mining tenements. Our mineral | Reserves in accordance with JORC Code | when advancing into the next study phase. | | leases are of sufficient duration, or convey | and it is uncertain that following evaluation | | The accompanying tables, on pages 175 to a legal right to renew the tenure, to enable and further exploration, the foreign 179, outline our Mineral/Coal Resources and all Ore Reserves on the leased properties estimates will be able to be reported as Ore/Coal Reserves holdings. to be mined in accordance with the current Mineral Resources or Ore Reserves in production schedules. These Ore Reserves accordance with the JORC Code. SOUTH32 ANNUAL REPORT 2022 173 ### Resources and Reserves continued Our exploration, research Competent Persons and development Mineral Resources Our operations carry out exploration, Worsley Alumina: P Soodi Shoar, MAusIMM research and development necessary to support our activities. Our brownfield Brazil Alumina: exploration activities target the delineation Mineração Rio Do Norte (MRN): M A H Monteiro, MAusIMM, employed by and categorisation of mineral deposits Mineração Rio do Norte S.A. connected or adjacent to our existing Cannington: P Soodi Shoar, MAusIMM operations. Our greenfield exploration activities focus on the discovery and Hermosa: delineation of opportunities outside of our Taylor: B Parsons, MAusIMM (CP), employed by SRK Consulting (US) Inc operational footprint, with a bias to base Clark: B Parsons, MAusIMM (CP), employed by SRK Consulting (US) Inc metals. Ambler Metals Joint Venture: During FY22 we continued to expand our Arctic: D F Machuca Mory, PEng., employed by SRK Consulting (Canada) Inc; global exploration footprint. We funded T Fouet, MAusIMM greenfield exploration in Australia, Peru, Colombia, Argentina, Ireland, Canada Bornite: S Khosrowshahi, MAusIMM (CP) employed by WSP Global Inc.; and the United States of America. Our T Fouet, MAusIMM exploration expenditure for FY22 was Cerro Matoso: I Espitia, MAusIMM (CP) US$74 million (FY21: US$57 million) of which US$18 million related to brownfield Australia Manganese: and US$56 million related to greenfield Groote Eylandt Mining Company (GEMCO): J Harvey, MAusIMM (FY21: US$19 million and US$38 million respectively). 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 2 % R.SiO Years 3 O 2 2 % R.SiO 3 O 2 % Mt % A. Al South32 Interest Total Mineral Resources 2 % R.SiO 3 O 2 South32 Interest Total Ore Reserves Reserve Life | Mt % A.Al | Years % Mt % A.Al | | | | --- | --- | --- | --- | | 2 | 2 | | | | | | and variable thickness ≥1-2m. 2 | | | % R.SiO | % R.SiO | | | | 3 | 3 | | | | O 2 | O 2 | | | | | | , <3-5% R.SiO 3 | | | | | O 2 | | | Mt % A.Al | Mt % A.Al | | | | | | | , ≥1m thickness and ≥30% recovery on weight per cent basis. 2 | | 2 | 2 | | | | % R.SiO | % R.SiO | | , ≤7% R.SiO 3 | | | | | O 2 | | 3 | 3 | | | | O 2 | O 2 | | | Variable ranging from 22.5-29% A.Al | Mt % A.Al | Mt % A.Al | | --- | --- | | 2 | 2 | | % R.SiO | % R.SiO | | 3 | 3 | | O 2 | O 2 | Proved Ore Reserves Probable Ore Reserves Total Ore Reserves Reserve Life for mineralised material and 2 Measured Mineral Resources Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources , ≤3% R.SiO 3 O 2 for blend material and ≥1m thickness. 2 , ≥1m thickness and ≥30% recovery on weight per cent basis ≥46% A.Al 2 Material Type Mt % A.Al Laterite 328 28.4 1.5 375 29.2 2.0 391 28.6 2.1 1,090 28.7 1.9 86 1,140 28.7 1.9 MRN Washed 288 49.7 4.4 38 48.7 5.1 132 49.9 3.6 458 49.6 4.2 33 471 49.6 4.2 Ore Type Mt % A.Al Laterite 191 28.2 1.6 36 27.7 1.6 227 28.1 1.6 13 86 242 27.7 1.7 14 MRN Washed 42 48.9 4.6 7.9 48.5 5.1 50 48.8 4.7 4.0 33 17 48.1 5.8 1.3 , ≤3-5% R.SiO 3 , ≤7% R.SiO 3 O 2 O 2 | | | | | | | | | | | | | Mineral Resources Ore Reserves | ≥28% A.Al | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | (1) | (2) | | | | (1)(8) | (4)(6) | | | | | | | | | | | | | | | | (3) | | | | | (3)(5)(7) | | | | | | | | | | | | | | | | | | | | | | | Worsley Variable ranging from 22-25% A.Al MRN ≥46% A.Al | | | | | | | Alumina | Mineral Resources | As at 30 June 2022 As at 30 June 2021 | Deposit | Worsley | MRN | Ore Reserves | As at 30 June 2022 As at 30 June 2021 | Deposit | Worsley | MRN | (1) Cut-off grade | | | (2) Change to Mineral Resource due to updated methodology. | (3) MRN Washed tonnes and grades represent the expected product based on forecast beneficiation yield. (4) Change to Ore Reserve classification due to change in Mineral Resource classification. | (5) Change to Ore Reserves due to grant of environmental approval. (6) Ore delivered to Worsley refinery. (7) Ore delivered to Alumar refinery. | (8) Metallurgical recovery: Worsley 91.9% | Alumar 92% | SOUTH32 ANNUAL REPORT 2022 175 Reserve Life | | Total Mineral Resources | Total Mineral Resources | | | --- | --- | --- | --- | | South32 Interest Total Mineral Resources | South32 Interest | South32 Interest | | | | | | South32 Interest Total Ore Reserves | Proved Ore Reserves Probable Ore Reserves Total Ore Reserves Reserve Life Measured Mineral Resources Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources Measured Mineral Resources Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources Measured Mineral Resources Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources Mineral Resources Ore Reserves Material Type Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn % Mt g/t Ag % Pb % Zn OC Sulphide 25 107 3.29 2.51 3.1 72 2.64 1.79 1.2 47 2.43 1.20 29 101 3.18 2.38 29 102 3.20 2.38 Material Type Mt % Zn % Pb % Mn g/t Ag Mt % Zn % Pb % Mn g/t Ag Mt % Zn % Pb % Mn g/t Ag Mt % Zn % Pb % Mn g/t Ag % Mt % Zn % Pb % Mn g/t Ag UG Transition 3.7 6.11 4.21 60 1.4 5.55 3.91 64 5.1 5.95 4.13 61 5.1 5.95 4.13 61 Material Type Mt % Cu % Zn % Pb g/t Ag g/t Au Mt % Cu % Zn % Pb g/t Ag g/t Au Mt % Cu % Zn % Pb g/t Ag g/t Au Mt % Cu % Zn % Pb g/t Ag g/t Au % Mt % Cu % Zn % Pb g/t Ag g/t Au UG Sulphide 70 2.29 70 2.29 70 2.29 Ore Type Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn Mt g/t Ag % Pb % Zn Years % Mt g/t Ag % Pb % Zn Years | | | | | (1) | | | (1) | | | | (1) | | | | | | (1)(2)(3) | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | | | | | | | | | | | UG Sulphide 130 145 OC Sulphide 58 | UG Sulphide 80 UG Transition 80 | UG Oxide 175 | OC Sulphide 63.4 | OC Sulphide 0.5% Cu UG Sulphide 1.5% Cu | | | | | | | | | | | | | | | | | | | | | | | | Cannington Net smelter return in A$/t Net smelter return in A$/t | Taylor Net smelter return in US$/t | Clark Net smelter return in US$/t | Arctic Net smelter return in US$/t | Bornite | | | Resources and Reserves continued | Base Metals | Mineral Resources | As at 30 June 2022 As at 30 June 2021 | Deposit | Cannington 100 | Cannington UG Sulphide 36 179 5.06 3.22 3.2 104 3.65 2.39 0.3 80 3.51 2.44 40 172 4.93 3.14 43 174 5.02 3.16 | Deposit | Hermosa 100 | Taylor UG Sulphide 29 4.10 4.05 57 82 3.65 4.45 88 23 3.62 3.82 93 133 3.74 4.26 82 133 3.74 4.26 82 | Clark UG Oxide 33 2.49 9.39 57 22 2.04 8.64 110 55 2.31 9.08 78 55 2.31 9.08 78 | Deposit | Ambler 50 | Arctic OC Sulphide 33 3.14 4.43 0.80 49 0.63 4.7 2.55 3.34 0.57 37 0.38 37 3.06 4.30 0.77 47 0.60 37 3.06 4.30 0.77 47 0.60 | Bornite OC Sulphide 40 1.06 38 1.03 78 1.04 78 1.04 | Ore Reserves | As at 30 June 2022 As at 30 June 2021 | Deposit | Cannington 100 | Cannington UG Sulphide 16 177 5.27 3.18 1.2 158 5.12 1.61 17 176 5.26 3.07 7.0 20 175 5.28 3.24 9.0 | (1) Cut-off grade | | | | | | (2) Ore delivered to process plant. (3) Metallurgical recoveries: 89% Ag, 88% Pb and 83% Zn. | | 176 | | RESOURCES AND RESERVES | | | | | | | | | | | | | | | | | | | | | | | | | South32 Interest Total Mineral Resources South32 Interest Total Ore Reserves Reserve Life Proved Ore Reserves Probable Ore Reserves Total Ore Reserves Reserve Life Measured Mineral Resources Indicated Mineral Resources Inferred Mineral Resources Total Mineral Resources Material Type Mt % Ni Mt % Ni Mt % Ni Mt % Ni % Mt % Ni Stockpile 14 1.0 38 0.8 52 0.9 53 0.9 Ore Type Mt % Ni Mt % Ni Mt % Ni Years % Mt % Ni Years Stockpile 7.3 1.1 5.0 1.1 12 1.1 15 1.1 Mineral Resources Ore Reserves | | | | | (1) | | | | (1)(2)(3) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | Laterite 0.6% Ni 0.6% Ni SP 0.6% Ni 0.6% Ni | | | | | Nickel | Cerro Matoso | Mineral Resources | As at 30 June 2022 As at 30 June 2021 | Deposit | Cerro Matoso Laterite 116 1.0 137 0.8 17 0.8 270 0.9 99.9 275 0.9 | Ore Reserves | As at 30 June 2022 As at 30 June 2021 | Deposit | Cerro Matoso Laterite 13 1.3 1.8 1.4 15 1.3 7.0 99.9 16 1.3 8.0 | (1) Cut-off grade | | (2) Ore delivered to process plant. (3) Global recovery: 81% | | | | | | | | | | | | | | | | | SOUTH32 ANNUAL REPORT 2022 | 177 | # Resources and Reserves continued # Manganese Mineral Resources As at 30 June 2021 | Organic^{(1)} | Material Type | Measured Mineral Resources | | | Indicated Mineral Resources | | | Inferred Mineral Resources | | | Total Mineral Resources | | | Realized Interest | | | As at 30 June 2021 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Mt | % Mn | % Yield | Mt | % Mn | % Yield | Mt | % Mn | % Yield | Mt | % Mn | % Yield | % | Mt | % Mn | % Yield | Total Mineral Resources | % Yield | | **Australia Manganese** | | | | | | | | | | | | | | | | | | | | | GEMCO | ROM^{(2)} | 74 | 44.8 | 48 | 38 | 40.9 | 47 | 26 | 44.2 | 45 | 138 | 43.6 | 47 | | 147 | 43.7 | 47 | | | | | SanGB^{(3)} | | | | 9.0 | 19.5 | | | | | 9.0 | 19.5 | | | 10 | 19.6 | | | | | | | Mt | % Mn | % Fe | Mt | % Mn | % Fe | Mt | % Mn | % Fe | Mt | % Mn | % Fe | | Mt | % Mn | % Fe | | | | **South Africa Manganese^{(4)}** | | | | | | | | | | | | | | | | | | | | | Vessels | Lower Body | 24 | 43.1 | 12.8 | 22 | 42.8 | 13.8 | 3.5 | 45.1 | 15.5 | 50 | 43.1 | 13.4 | | 52 | 42.1 | 13.6 | | | | | Upper Body | | | | 77 | 41.1 | 18.7 | 14 | 40.5 | 20.5 | 91 | 41.0 | 18.9 | | 92 | 40.8 | 19.0 | | | | Mainstream | M. C. % Zones | 36 | 36.8 | 4.5 | 14 | 36.7 | 4.6 | | | | 50 | 36.8 | 4.5 | | 52 | 37.0 | 4.5 | | | | | X Zone | 3.1 | 36.8 | 4.6 | 0.6 | 35.9 | 4.6 | | | | 3.7 | 36.7 | 4.6 | | 4.6 | 36.7 | 4.6 | | | | | Top Cut Distance BUD | 13 | 29.8 | 6.1 | 4.8 | 29.6 | 6.1 | | | | 18 | 29.7 | 6.1 | | 23 | 29.6 | 6.1 | | | # Ore Reserves As at 30 June 2021 | Organic^{(1)} | Ore Type | Prevent Ore Reserves | Probable Ore Reserves | Total Ore Reserves | Reserve Life | Realized Interest | As at 30 June 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | | Mt | % Mn | % Yield | Mt | % Mn | % Yield | Mt | % Mn | % Yield | Years | % | Mt | % Mn | % Yield | Years | % | Mt | % Mn | % Yield | | **Australia Manganese** | | GEMCO^{(2)} | ROM | 33 | 42.9 | 59 | 2.3 | 43.9 | 54 | 35 | 43.0 | 59 | 3.9 | | | 66 | 43.2 | 59 | 6.9 | | | | SanGB | | | | 5.8 | 40.0 | 19 | 5.8 | 40.0 | 19 | | | | 7.1 | 40.0 | 20 | | | | | | | Mt | % Mn | % Fe | Mt | % Mn | % Fe | Mt | % Mn | % Fe | | | | Mt | % Mn | % Fe | | | | | **South Africa Manganese^{(4)}** | | Vessels | Lower Body | 3.8 | 43.2 | 10.8 | 11 | 42.9 | 14.1 | 15 | 43.0 | 13.3 | 42 | | | 16 | 43.3 | 13.3 | 44 | | | | Upper Body | | | | 42 | 41.2 | 18.6 | 42 | 41.2 | 18.6 | | | | 46 | 40.9 | 18.7 | | | | | Mainstream | M. C. % Zones | 27 | 36.2 | 4.5 | 18 | 36.1 | 4.6 | 45 | 36.2 | 4.5 | 14 | | | 60 | 36.4 | 4.5 | 15 | | | (1) Cut-off grade | GEMCO | ROM | Natural Resources | Ore Reserves | | --- | --- | --- | --- | | | SanGB | Can be researched product | Not cut-off grade applied | | | | Not cut-off grade applied | Not cut-off grade applied | | Metals | | 2.27% Mn | 2.27% Mn | | Mainstream | M. C. % Zones | Not cut-off grade applied | Not cut-off grade applied | | | X Zone | 1.0% Mn | | | | Not Cut Distance BUD | 1.0% Mn | | (2) Mineral Resources for are core distances in total manganese grades are stated as per standard ore samples and should be read together with their respective mass recovery expressed as yield (3) Mineral Resources for are and manganese grades are stated as in situ (4) Ore Reserves for are and stated as delivered to process plant, manganese grades are stated as expected product and should be read together with their respective mass yields (5) Ore delivered to process plant (6) Metals (good Plant) explained for the operations GEMCO: See yield in the Reserves Table Metals: 38% Mainstream: 96% 178 RESOURCES AND RESERVES # Metallurgical Coal # Australia Metallurgical Coal # Coal Resources | As at 30 June 2021 | | | | | | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Dataset* | Wiring Method | Coal Type | Measured Coal Resources | | | | Indicated Coal Resources | | | | Inferred Coal Resources | | | | Total Coal Resources | | | | South13 Interest | | Total Coal Resources | | | | | | | Mt | % Ash | % VM | % S | Mt | % Ash | % VM | % S | Mt | % Ash | % VM | % S | Mt | % Ash | % VM | % S | % | Mt | % Ash | % VM | % S | | Rewards Metallurgical Coal** | | | | | | | | | | | | | | | | | | | | | | | | | Bulk | UG | Met/Th | 173 | 11.4 | 24.0 | 0.36 | 296 | 12.2 | 23.6 | 0.36 | 307 | 13.4 | 23.0 | 0.35 | 774 | 12.5 | 23.5 | 0.36 | | 789 | 12.6 | 23.4 | 0.36 | | Wongwelli | UG | Met/Th | 54 | 28.7 | 23.4 | 0.59 | 243 | 29.7 | 22.2 | 0.57 | 130 | 30.0 | 22.2 | 0.57 | 427 | 29.7 | 22.4 | 0.58 | | 426 | 29.5 | 22.4 | 0.57 | | Caple Downs** | UG | Met | 759 | 29.4 | 33.0 | 0.48 | 201 | 28.7 | 14.7 | 0.48 | 183 | 30.0 | 14.8 | 0.47 | 1,140 | 29.4 | 14.9 | 0.47 | 50 | 1,140 | 29.4 | 14.9 | 0.47 | # Coal Reserves | As at 30 June 2021 | | | | | | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Dataset*** | Wiring Method | Coal Type | Annual Coal Reserves | | Probable Coal Reserves | | Total Coal Reserves | | Annual Marketable Coal Reserves | | Probable Marketable Coal Reserves | | Total Marketable Coal Reserves | | Rewards Life | | South13 Interest | | Total Marketable Coal Reserves | | Rewards Life | | | | | Mt | Mt | Mt | Mt | % Ash | % VM | % S | Mt | % Ash | % VM | % S | Mt | % Ash | % VM | % S | Years | % | Mt | % Ash | | Rewards Metallurgical Coal | | | | | | | | | | | | | | | | | | | | | | | Bulk | UG | Met | 10 | 103 | 113 | 8.4 | 8.9 | 24.3 | 0.35 | 87 | 8.9 | 24.6 | 0.35 | 95 | 8.9 | 24.6 | 0.35 | 24 | | 87 | 8.9 | | Wongwelli | UG | Met/Th | 3.4 | 7.6 | 11 | | | | | | | | | | | | | 4.2 | | | | | | UG | Met | | | | 2.1 | 10.8 | 23.5 | 0.59 | 4.1 | 10.8 | 23.1 | 0.60 | 6.2 | 10.8 | 23.2 | 0.60 | | 8.1 | 10.8 | 23.6 | | | UG | Th | | | | 0.7 | 28.0 | | | 1.7 | 28.0 | | | 2.4 | 28.0 | | | | 3.0 | 28.0 | | 11) Cut-off grade Coal Resources No seam thickness cut-off applied; minimum thickness is economic. No seam thickness cut-off applied; minimum thickness within the time (year) is economic. 12) Coal Resources for new are reported on an in situ moisture basis. As is reported as raw, VM and S are reported as external product on an dried basis. 13) Coal Resources for new are reported on an in situ moisture basis. As is reported as raw, VM and S are reported as external product on an dried basis. 14) Total Coal Resources are at the most recent when in April 2015. Bulk: 7% Wongwelli. Total Marketable Coal Reserves are the names of coal available at most are content (8.3% Bulk: 12% Wongwelli Met, 6% Wongwelli Th) and an dried qualities after the landification of the Total Coal Reserves. 15) Coal Retained to waste plant 16) Process resources 16.0 Bulk Wongwelli 17% SOUTH13 ANNUAL REPORT 2022 179 ## INFORMATION Shareholder information 181 Glossary of terms and abbreviations 184 Corporate directory 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 | Date notice received | Number of shares in notice | Percentage of capital in notice | | --- | --- | --- | --- | | BlackRock Group | 8 December 2021 | 318,403,413 | 6.84 | | Vanguard Group | 23 June 2022 | 235,364,454 | 5.077 | | State Street Corporation | 31 July 2022 | 232,738,393 | 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 | Number of shareholders | Number of shares | Percentage of capital | | --- | --- | --- | --- | | 1 – 1,000 | 121,991 | 58,805,163 | 1.27 | | 1,001 – 5,000 | 84,540 | 203,797,592 | 4.40 | | 5,001 – 10,000 | 22,225 | 162,733,053 | 3.52 | | 10,001 – 100,000 | 19,356 | 438,832,803 | 9.48 | | 100,001 and over | 620 | 3,764,262,973 | 81.33 | | **Total** | **248,732** | **4,628,431,584** | **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 | Number of rights holders | Number of rights | Percentage of rights on issue | | --- | --- | --- | --- | | 0 – 1,000 | 434 | 230,020 | 0.396 | | 1,001 – 5,000 | 5,866 | 9,085,428 | 15.631 | | 5,001 – 10,000 | 13 | 86,684 | 0.149 | | 10,001 – 100,000 | 122 | 5,660,500 | 9.739 | | 100,001 and over | 81 | 43,061,921 | 74.086 | | **Total** | **6,516** | **58,124,553** | **100.00** | SOUTH32 ANNUAL REPORT 2022 181 ### 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. Name Number of fully paid shares Percentage of capital 1 HSBC Custody Nominees (Australia) Limited 1,433,932,720 30.98 2 J P Morgan Nominees Australia Pty Limited 812,106,185 17.55 3 Citicorp Nominees Pty Ltd 465,695,960 10.06 4 Computershare Clearing Pty Ltd 174,514,959 3.77 5 South Africa Control A/C\C 155,716,297 3.36 6 BNP Paribas Noms Pty Ltd 129,839,765 2.81 7 National Nominees Limited 127,765,731 2.76 8 Citicorp Nominees Pty Limited 83,8 07,90 5 1.81 9 BNP Paribas Nominees Pty Ltd 55,761,369 1.20 10 Citicorp Nominees Pty Limited 47, 417,6 45 1.02 11 HSBC Custody Nominees (Australia) Limited 25,602,228 0.55 12 BNP Paribas Nominees Pty Ltd ACF Clearstream 10,340,762 0.22 13 CPU Share Plans Pty Ltd 9,863,255 0.21 14 CPU Share Plans Pty Ltd 8,893,822 0.19 15 HSBC Custody Nominees (Australia) Limited - A/C 2 8,711,119 0.19 16 Netwealth Investments Limited 7,455,682 0.16 17 BNP Paribas Noms Pty Ltd 6,681,988 0.14 18 BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd 4,650,985 0.10 19 HSBC Custody Nominees (Australia) Limited 4,080,486 0.09 20 Mr Graham Kerr 3,804,207 0.08 Total 3,576,643,070 7 7. 2 8 | Restricted and escrowed securities | Dividend policy | Capital management program | | --- | --- | --- | | As at 5 August 2022, South32 Limited | Our dividend policy is determined by the | In February 2022, we expanded our capital | | does not have any restricted securities or | Board at its discretion. Our priorities for | management program by US$110 million to | | securities subject to voluntary escrow on | cash flow are to maintain safe and reliable | US$2.1 billion, comprising a US$1.5 billion | | issue. | operations and an investment grade credit | on-market share buy-back and special | | | rating through the cycle. | dividends of US$154 million (paid in 2018), | Shareholders with less than US$85 million (paid in 2019), US$53 million a marketable parcel Our current dividend policy is that South32 (paid in 2020) and US$93 million (paid in As at 5 August 2022, there were 10,195 Limited intends to distribute a minimum 2021). | shareholders on the Australian South32 | 40 per cent of underlying earnings as | | | --- | --- | --- | | Limited register holding less than a | dividends to its shareholders following | As at 30 June 2022, we had returned a total | | marketable parcel (A$500) based on the | each six-month reporting period. South32 | value of US$1.9 billion to our shareholders | | closing market price of A$3.83. | Limited intends to distribute dividends with | under the capital management program. | | | the maximum practicable franking credits | Subsequent to 30 June 2022, the Board | | On-market purchases of South32 | for the purposes of the Australian dividend | has expanded the capital management | | Limited securities for employee | imputation system. | program by US$156 million to | | incentive plans | | US$2.3 billion, approved a US$139 million | | The Group purchases South32 Limited | Dividend determination and | | special dividend to be paid in October 2022 payment | ordinary shares on-market through the | | and extended the execution window for | | --- | --- | --- | | Employee Share Ownership Plan (ESOP) | Our dividends are determined in US dollars. | the remaining program by 12 months to | | Trusts for the purposes of the South32 | | 1 September 2023. | Dividends for shareholders of South32 Equity Incentive Plans. During FY22, Limited on the Australian register are paid The on-market share buy-back was 5,765,000 shares were purchased by direct credit into their nominated bank initially announced on 27 March 2017 and on-market for the Australian ESOP Trust. account in Australian dollars, UK pounds purchasing commenced on 19 April 2017. The average price at which the shares were sterling, New Zealand dollars or US dollars, During the year ended 30 June 2022, purchased was A$4.75. No shares were provided direct credit details and currency South32 Limited purchased 46 million purchased for the South African ESOP Trust election information are submitted no later shares under the on-market share buy- during FY22. | | than close of business on the dividend | back, which represented one per cent | | --- | --- | --- | | In addition, 39,125 shares were purchased | record date as stated in the relevant ASX | of share capital at the beginning of the | | on-market and immediately distributed | announcement. | financial year. Total consideration paid | | to Canadian based employees on vesting | | for these shares was US$128 million. The | Dividends for shareholders of South32 of rights. The average price at which the shares have no par value. Limited on the South African branch shares were purchased was A$2.86. register and UK Depositary Interest holders are paid by direct credit in South African rand and UK pounds sterling respectively. For further information about dividends visit www.south32.net/investors-media/ investor-centre/dividends. 182 INFORMATION Between the commencement of Share registries Branches purchasing under the on-market share In accordance with DTR 4.1.11R(5), South32 Australia buy-back on 19 April 2017 and 30 June Limited, through various subsidiaries, Computershare Investor Services Pty 2022, South32 Limited has purchased has established branches in a number of Limited a total of 695 million shares, which different jurisdictions in which the business Yarra Falls 452 Johnston Street represented 13 per cent of share capital operates. Abbotsford Victoria 3067 at the commencement of the program. Australia | The total consideration paid for the shares | | Registered office | | --- | --- | --- | | bought back up to 30 June 2022 was | Telephone (Australia): 1800 019 953 | Information regarding the South32 | | US$1.5 billion. | Telephone (International): +61 3 9415 4169 | Limited Registered Office is included in | | | Facsimile: +61 3 9473 2500 | the Corporate directory on the inside back | All of the shares purchased by South32 cover. Limited under the on-market share South Africa buy-back have been cancelled. Computershare Investor Services (Pty) Electronic communications Limited Shareholders are encouraged to access all Annual General Meeting (AGM) Rosebank Towers, 15 Biermann Avenue South32 communications electronically. Our 2022 AGM is scheduled to be held on Rosebank, 2196 Shareholders that wish to receive Thursday 27 October 2022 at 12.00pm South Africa electronic communications can update (midday) Australian Western Standard their preferences online or by telephoning Time as a hybrid meeting, providing Telephone: +27 11 373 0033 the relevant Computershare Investor shareholders with the opportunity to Facsimile: +27 11 688 5217 Centre. Refer to the Investor centre attend physically or participate via online Email enquiries: section at www.south32.net for further facilities. We will continue to monitor web.queries@computershare.co.za details on how to receive shareholder the COVID-19 situation in Perth and if Holders of shares dematerialised into communications. it becomes necessary or appropriate Strate should contact their Central to make alternative or supplementary Securities Depository Participant or arrangements, we will provide an update. stockbroker. Further details regarding the AGM will be | made available in September 2022, and | United Kingdom | | --- | --- | | shareholders are encouraged to monitor | Computershare Investor Services PLC | | securities exchange releases and the | The Pavilions, Bridgwater Road | | Company’s website www.south32.net for | Bristol BS99 6ZZ | | information and updates. | United Kingdom | | Presentations delivered at the AGM, | Telephone: +44 370 873 5884 | | together with the results of voting, will be | Facsimile: +44 370 703 6101 | | provided to all stock exchanges and will be | Email enquiries: | | available at www.south32.net | web.queries@computershare.co.uk | | Stock exchanges | American Depositary Receipts | (ADR) As at 5 August 2022, South32 Limited has a primary listing on the Australian Securities ADR holders should deal directly with Exchange, a secondary listing on the Citibank Shareholder Services. Johannesburg Stock Exchange, is admitted Citibank Shareholder Services to the standard segment of the Official List PO Box 43077 Providence, of the UK Listing Authority and its ordinary Rhode Island 02940-3077 shares are traded on the London Stock Exchange. Telephone: +1 877 248 4237 (+1-877-CITIADR) (toll-free within US) South32 Limited also has a Level 1 +1 781 575 4555 (outside of US) American Depositary Receipts program, Facsimile: +1 201 324 3284 which trades in the United States Email enquiries: over-the-counter market. citibank@shareholders-online.com Website: www.citi.com/dr Shareholder enquiries Shareholders can access their current holding details as well as their transaction history, view dividend statements and payments made, download statements and documents, change their address, update their communication preferences and banking details, and check their tax details online via Computershare’s Investor Centre at www.computershare.com. Alternatively, refer to the following contacts: SOUTH32 ANNUAL REPORT 2022 183 ### Glossary of terms and abbreviations Mining related terms Exploration Results Marketable Coal Reserves Alumina Exploration Results include data and Represents beneficiated or otherwise information generated by mineral exploration enhanced coal product where modifications Aluminium oxide (Al₂O₃). Alumina is produced programs that might be of use to investors due to mining, dilution and processing have from bauxite in the Bayer refining process. It’s but which do not form part of a declaration been considered (JORC Code). then converted (reduced) in an electrolysis cell of Mineral Resources or Ore Reserves (JORC to produce aluminium metal. MAusIMM Code). Ash Member of the Australasian Institute of Mining Flotation and Metallurgy. Inorganic material remaining after combustion A method of selectively recovering minerals of coal. MAusIMM (CP) from finely ground ore using a froth created ASX Listing Rules (Chapter 5): Additional Accredited Chartered Professional status of in water by specific reagents. In the flotation reporting on mining and oil and gas members of the AusIMM. These members process, certain mineral particles are induced production and exploration activities have undergone an assessment of their to float by becoming attached to bubbles of competencies, which are maintained through This chapter of the ASX Listing Rules sets froth and the unwanted mineral particles sink. continuing professional development activities. out additional reporting and disclosure Foreign Estimate requirements for mining entities, oil and gas Measured Mineral Resource An estimate of quantity and grade of entities, as well as other entities reporting on That part of a Mineral Resource for which mineralisation that was prepared using a mining and oil and gas activities. quantity, grade (or quality), densities, shape mineral resources classification and reporting AusIMM and physical characteristics are estimated with standard from another jurisdiction prior to an confidence sufficient to allow the application The Australasian Institute of Mining and entity acquiring, or entering into an agreement of Modifying Factors to support detailed mine Metallurgy. to acquire, an interest in a mining tenement planning and final evaluation of the economic that contains the deposit, and which the entity Bauxite viability of the deposit (JORC Code). has not verified as mineral resources or ore Principal commercial ore of aluminium. reserves in accordance with JORC Code. Metallurgical coal Beneficiation A broader term than coking coal that includes Grade The process of physically separating ore from all coals used in steelmaking, such as coal used Any physical or chemical measurement of the gangue to produce a mineral concentrate prior for the pulverised coal injection process. characteristics of the material of interest in to subsequent processing. samples or product (JORC Code). Mineral reserve Brownfield A mineral reserve is the economically mineable Greenfield An exploration or development project located part of a measured and/or Indicated mineral An exploration or development project that within an existing mineral province, which can resource. It includes diluting materials and refers to a new venture or operation, without share infrastructure and management with an allowances for losses, which may occur any association or proximity to a current existing operation. when the material is mined or extracted and operation. is defined by studies at pre-feasibility or Coal Reserve Indicated Mineral Resource feasibility level as appropriate that include The same meaning as Ore Reserve, but That part of a Mineral Resource for which application of Modifying Factors. Such studies specifically concerning coal. quantity, grade (or quality), densities, shape demonstrate that, at the time of reporting, Coal Resource and physical characteristics are estimated extraction could reasonably be justified. The same meaning as Mineral Resource, but with sufficient confidence. This allows the Mineral Resource specifically concerning coal. application of Modifying Factors in sufficient A concentration or occurrence of solid detail to support mine planning and evaluation Coking coal material of economic interest in or on the of the economic viability of the deposit (JORC Used in the manufacture of coke, which is used Earth’s crust in such form, grade (or quality), Code). in the steelmaking process by virtue of its and quantity that there are reasonable carbonisation properties. Coking coal is a form Inferred Mineral Resource prospects for eventual economic extraction. of, and may also be referred to as, metallurgical That part of a Mineral Resource for which The location, quantity, grade (or quality), coal. quantity and grade (or quality) are estimated continuity and other geological characteristics on the basis of limited geological evidence and of a Mineral Resource are known, estimated Competent Person sampling. Geological evidence is sufficient to or interpreted from specific geological A minerals industry professional who is a imply but not verify geological and grade (or evidence and knowledge, including sampling. Member or Fellow of The Australasian Institute quality) continuity (JORC Code). Mineral Resources are sub-divided, in order of of Mining and Metallurgy, or of the Australian increasing geological confidence, into Inferred, Institute of Geoscientists, or of a ‘Recognised JORC Indicated and Measured categories (JORC Professional Organisation’, as included in a list Joint Ore Reserves Committee comprising Code). available on the JORC and ASX websites. These representatives of The Australasian Institute organisations have enforceable disciplinary of Mining and Metallurgy (AusIMM), Australian Mineralisation processes, including the powers to suspend or Institute of Geoscientists (AIG) and Minerals Any single mineral or combination of minerals expel a member. Council of Australia (MCA) as well as the occurring in a mass, or deposit, of economic Australian Securities Exchange (ASX), the interest (JORC Code). A Competent Person must have a minimum Financial Services Institute of Australasia of five years’ relevant experience in the style Modifying Factors (FinSIA) and the accounting profession. of mineralisation or type of deposit under Considerations used to convert Mineral consideration and in the activity that the JORC Code Resources to Ore Reserves. These include, person is undertaking (JORC Code). The Australasian Code for reporting of but are not restricted to, mining, processing, Exploration Results, Mineral Resources and Ore metallurgical, infrastructure, economic, Cut-off grade Reserves 2012 Edition prepared by the JORC. marketing, legal, environmental, social and The lowest grade, or quality, of mineralised governmental factors (JORC Code). material that qualifies as economically Laterite mineable and available in a given deposit. A residual soil or deposit formed by the MSAIMM It may be defined on the basis of economic leaching of silica from rocks under specific Member of the Southern African Institute of evaluation, or on physical or chemical climatic conditions. Mining and Metallurgy. attributes that define an acceptable product Leaching Net smelter return specification (JORC Code). The process by which a soluble metal can be An estimate of revenue derived from the sale Energy coal economically recovered from minerals in ore by of products and concentrates following the Used as a fuel source in electrical power dissolution. application of metallurgical recoveries and generation, cement manufacture and various deducting transport costs, treatment and Life of Operation Plan industrial applications. Energy coal may also be refining charges, penalties and royalties. The combination of an Optimised Base Plan referred to as steaming or thermal coal. and incremental opportunities available to the operation for maximising value. 184 INFORMATION OC/OP (Open-cut/open-pit/open-cast) Total Ore Reserves B-BBEE Surface working in which the working area is The sum of Proved Ore Reserves and Probable Broad-Based Black Economic Empowerment. kept open to the sky. Ore Reserves. BHP Ore Reserve Total Mineral Resources BHP, formerly known as BHP Billiton, is the The economically mineable part of a Measured The sum of Inferred Mineral Resources, group of companies headed by, and including, and/or Indicated Mineral Resource. It includes Indicated Mineral Resources and Measured BHP Group Ltd and BHP Group plc. diluting materials and allowances for losses, Mineral Resources. Black People which may occur when the material is mined Transitional climate risks As defined in the Broad-Based Black Economic or extracted and is defined by studies at Pre- Non-physical risks arising from changes to Empowerment Amendment Act 2013 (South feasibility or Feasibility level as appropriate policy, technology, legal and markets as the Africa), a generic term meaning Africans, that include application of Modifying Factors. world moves to a low-carbon energy system, in Coloureds and Indians who are citizens of the Such studies demonstrate that, at the time line with the Paris Agreement objectives. Republic of South Africa by birth or descent; or of reporting, extraction could reasonably be who become citizens of the Republic of South justified (JORC Code). UG Africa by naturalisation before 27 April 1994 Underground working in which the working PEng or on or after 27 April 1994 and who would area is below the surface of the earth. A licenced member of Professional Engineers have been entitled to acquire citizenship by of Ontario (PEO). Yield naturalisation prior to that date. The percentage of material of interest that is Physical climate risk Board extracted during mining and/or processing. Physical climate risks are driven or intensified The Board of Directors of South32 Limited. A measure of mining or processing efficiency by weather, climate variability or climate (JORC Code). When used in reference to the Catchment change. They include acute risks, resulting Mineral Resource estimate yield refers to the The area of land from which all surface from increased frequency or severity of sample mass recovery following beneficiation. runoff and subsurface water flows through extreme weather events (e.g., drought or a sequence of streams, rivers, aquifers and flood events) and chronic risks, resulting from Finance, marketing and general lakes into the sea or another outlet at a single longer-term changes in climate patterns (e.g., terms river mouth, estuary, or delta. Catchments sustained higher temperatures, sea level rise). AASB include associated groundwater areas and Probable Ore Reserve might include portions of waterbodies (such Australian Accounting Standards Board. The economically mineable part of an as lakes or rivers). In different parts of the Adjusted return on invested capital (Adjusted world, catchments are also referred to as Indicated and, in some circumstances, a ROIC) ‘watersheds’ or ‘basins’ (or sub-basins). Measured Mineral Resource. The confidence in the Modifying Factors applying to a Probable Calculated as Underlying EBIT, adjusted for CCAP Ore Reserve is lower than that applying to a uncontrollable and one-off impacts in the current financial year, less the discount on Climate Change Action Plan. Proved Ore Reserve (JORC Code). rehabilitation provisions included in net finance CEO Proved Ore Reserve cost, tax effected by the Group’s prior period Chief Executive Officer. The economically mineable part of a Measured Underlying effective tax rate (ETR) including Mineral Resource. A Proved Ore Reserve our material equity accounted investments CFO implies a high degree of confidence in the on a proportional consolidated basis, divided Chief Financial Officer. Modifying Factors (JORC Code). by the sum of fixed assets (excluding any Community investment rehabilitation assets, the impairment of Pr.Eng. Contributions made to support communities Eagle Downs Metallurgical Coal and Illawarra A registered member of the Engineering that we operate in, or have an interest in. Metallurgical Coal, the impairment reversal Council of South Africa (ECSA). of Brazil Aluminium, and unproductive capital Our contributions to community programs Pr. Sci. Nat. associated with Growth and Life Extension comprise direct investment, in-kind support Professional Natural Scientist of the South projects) and inventories. Underlying EBIT and administrative costs. African Council for Natural Scientific is adjusted by excluding the current period Contractor Professions. impacts of foreign currency on revenue and A contractor is an employee of a company cost, and commodity prices on revenue and Reserve Life contracted by the employer to do work on associated price-linked costs, less the discount The scheduled extraction period in years for its behalf and under its control with respect on rehabilitation provisions included in net the Total Ore Reserves in the approved Life to location, work practices and application of finance cost, and tax effected by the Group’s of Operation Plan reported to two significant health and safety standards. prior period Underlying effective tax rate. figures. Copper equivalent production AGM ROM (Run of Mine product) Copper equivalent production is calculated by Annual General Meeting. Product mined in the course of regular mining accumulating revenue using realised prices activities. AO for all operations and dividing by the price of Officer of the Order of Australia. copper. SACNASP South African Council for Natural Scientific Australian Securities and Investments Cost, Insurance, and Freight (CIF) Professions. Commission (ASIC) A contractual term defining responsibilities The independent Australian Government and division of cost and risk between buyer Sands body that is Australia’s integrated corporate, and seller, in which the seller is responsible for Tailings produced as a by-product during markets, financial services and consumer clearing the goods for export and bears the beneficiation of ore. credit regulator. cost of freight and insurance to the named Stockpile (SP) port of destination. The buyer assumes all risks ASX An accumulation of ore or mineral built up and costs for unloading the goods and clearing ASX Limited or Australian Securities Exchange. when demand slackens or when the treatment the goods for import. Risk passes from seller to plant or beneficiation equipment is incomplete ASX Listing Rules buyer once the goods are on board the vessel or temporarily unable to process the mine The rules governing the listing of an entity and at the port of shipment. output; any heap of material formed to create the quotation of its securities on the ASX. CO -e 2 a buffer for loading or other purposes, or ATSI Carbon dioxide equivalent. material dug and piled for future use. Aboriginal and Torres Strait Islander. COO Tailings Biodiversity Chief Operating Officer. Those portions of washed or milled ore that are Refers to the variety of life on Earth – the too poor to be treated further or remain after Corporations Act different animals, plants and micro- organisms, the required metals and minerals have been Corporations Act 2001 (Cth). their genetic diversity and the ecosystems of extracted. which they are a part. SOUTH32 ANNUAL REPORT 2022 185 ### Glossary of terms and abbreviations continued Contextual water target Fatality ICMM A contextual water target is a specific A health or safety event where an injury or ICMM, previously referred to as the International timebound target that is set to deliver an occupational illness has caused the death of Council on Mining and Metals, is an international intended outcome based on the environmental one or more person(s). organisation that leads through collaboration to and social context of the local catchment. enhance the contribution of mining and metals Free cash flow to sustainable development. As a corporate COVID-19 Free cash flow represents operating cash flows member, South32 commits to implementing Coronavirus disease (COVID-19) is an infectious including distributions received from equity and reporting on the ICMM Mining Principles disease caused by the SARS-CoV-2 virus. accounted investments, and after interest and its Performance Expectations, which (paid)/received, tax (paid)/received and capital Decarbonisation define environmental, social and governance expenditure. Avoiding or reducing the greenhouse gas requirements. emissions associated with an activity. Free On Board (FOB) IMC A contractual term defining responsibilities Demerger Illawarra Metallurgical Coal. and division of cost and risk between buyer The separation of assets from BHP effected in and seller, in which the seller is responsible Indigenous, Traditional and Tribal Peoples May 2015 to create a separate entity South32 for clearing the goods for export and loading We use the defined term 'Indigenous, Limited, listed on the ASX, LSE and JSE. | | them on board the vessel at the named port | Traditional and Tribal Peoples' as per the | | --- | --- | --- | | Dewatering | of shipment. The buyer assumes all risks and | definition and guidance set out in the | | Aquifer interception and removal of water from | costs for goods from this moment forward | Indigenous and Tribal Peoples Convention, | | beneath the earth’s surface. Does not include | Including the cost of freight and insurance. | 1989 (No. 169). We use this term inclusively | | the removal of sea water. | | to encompass the diversity of worldwide | FX Indigenous, Traditional and Tribal Peoples, DND Foreign exchange. including but not limited First Nations, Native Dendrobium Next Domain. Americans, Traditional Owners, Aboriginal and FYXX Refers to the financial year ending 30 June Torres Strait Islander Peoples and other land- DTR 20XX, where XX is the two-digit number for connected communities. We recognise that no UK Financial Conduct Authority’s Disclosure the year. single definition can fully capture the diversity Guidance and Transparency Rules. A reference of Indigenous, Traditional and Tribal Peoples. to DTR followed by a number is a specific rule Gearing under the DTR. Injury The ratio of net debt to net debt plus net assets. An occupational injury occurs during a single EBIT work shift or a single exposure to an agent(s) Earnings before interest and tax. GEMCO causing an acute toxic effect, which can be EBITDA Groote Eylandt Mining Company. identified by time and place resulting from Earnings before interest, tax, depreciation and direct contact with an object following an Global Reporting Initiative (GRI) amortisation. instantaneous event. Examples include cut, GRI is an international independent puncture, laceration, abrasion, fracture, bruise, Effective tax rate (ETR) organisation that has established an contusion, chipping tooth, amputation, insect Income tax expense/benefit divided by profit/ international framework and standards for bite, electrocution, or a thermal, chemical, loss subject to tax. sustainability reporting. South32 prepares our electrical or radiation burn. Sprain and strain Group-level annual Sustainable Development Employee injuries to muscles joints connective tissue are Report in accordance with the GRI Any person in full-time, part-time or casual classified as injuries when they result from a Sustainability Reporting Standards. employment engaged by South32 on a slip, trip, fall or other similar accidents. Goal temporary or permanent basis pursuant to a International Financial Reporting Standards contract of service. The use of this term in the context of climate (IFRS) change in this report means an aspiration Energy consumption Accounting standards as issued by the IASB to deliver an outcome for which we have not Energy consumed where we have operational (International Accounting Standards Board). identified a pathway for delivery, but for which control includes fuel consumed for non- efforts will be pursued towards achieving that JSE combustion and combustion activities, outcome, subject to certain assumptions or Johannesburg Stock Exchange. regardless of the use, I.e. stationary or mobile conditions. purposes. Where energy is consumed to Just transition Greenhouse gas (GHG) emissions generate a secondary energy stream (for A fair, equitable and inclusive social transition example electricity generation or transfer of For our reporting purposes, GHG emissions towards a low-carbon economy. unprocessed natural gas to natural gas ready are the combined anthropogenic emissions KMP | for distribution), only the primary energy | of carbon dioxide (CO | | ), methane (CH | | ), | | | --- | --- | --- | --- | --- | --- | --- | | | | | 2 | | 4 | | | | nitrous oxide (N | O), perfluorocarbons (PFCs) | | | | Key management personnel are people who | | consumption is reported. | | 2 | | | | | | | and sulphur hexafluoride (SF | | | ). They are | | have authority and responsibility for planning, | 6 Environmental incident directing and controlling the activities of measured in carbon dioxide equivalent (CO -e). 2 Any event with an impact to land, biodiversity, Hydrofluorocarbons (HFCs) GHG emissions South32 either directly or indirectly. ecosystem services, water resources or air. are currently not relevant for our reporting LBMA purposes. ESG London Bullion Market Association. Environmental, social and governance. - Scope 1 emissions - GHG emissions from our Lead Team own operations, including the electricity we Employee Share Ownership Plan (ESOP) All Chief positions within South32. generate at our sites Trusts - Scope 2 emissions - Indirect GHG emissions Low-carbon The trusts which purchase and hold South32 from the generation of purchased electricity Refers to lower levels of GHG emissions when Limited shares for the purpose of the South32 - Scope 3 emissions - GHG emissions in the compared to the current state. Where used in Equity Incentive Plans. South32 has an value chain. relation to South32’s products or portfolio, it Australian ESOP Trust and South African ESOP refers to enhancement of existing methods, Trust . HMM practices and technologies to substantially EthicsPoint Hotazel Manganese Mines. lower the level of embodied GHG emissions as A 24/7 confidential reporting hotline that is compared to the current state. serviced by an independent provider. Low-carbon aluminium Executive KMP Aluminium produced in a process that results Lead Team members who are classified as KMP. in less than 4t CO -e Scope 1 and Scope 2 2 emissions per tonne of aluminium produced. External Auditor KPMG. LME London Metal Exchange. 186 INFORMATION LSE Occupational illness STI London Stock Exchange. An occupational illness is any abnormal Short-term incentive. condition or disorder, other than one resulting LTI Sustainable development from an occupational injury, caused or Long-term incentive. Defined as supporting the needs of the aggravated by exposures to factors associated present without compromising the ability Management roles with employment. It includes acute or chronic of the future generations to meet their own Management roles are leaders with an illnesses or diseases which may be caused needs. identified job grading of 13 or higher based on by inhalation, absorption, ingestion or direct the requirements of their role. contact. Target The use of this term in the context of climate Margin on third party products Operational GHG emissions change in this report means an intended Comprises Underlying EBIT on third party Scope 1 and 2 GHG emissions from our outcome in relation to which we have identified products and services, divided by underlying operated assets. one or more pathways for delivery of that revenue on third party products and services. Operational Leadership Team outcome, subject to certain assumptions or Material topic All General Managers and Managers reporting conditions. Topic that reflects a reporting organisation’s to Vice President Operations, and all Managers TEMCO significant economic, environmental and social reporting to General Managers at an operation. Tasmanian Electro Metallurgical Company. impacts or that substantively influences the Excludes: Functional Managers (such as assessments and decisions of stakeholders. Human Resources, Finance and Supply). Total Recordable Injury Frequency (TRIF) (The sum of recordable injuries x 1,000,000) Modern slavery Our people ÷ exposure hours , for employees and Modern slavery is an umbrella term referring to As defined in our Code of Business Conduct, contractors. This is stated in units of per million situations of serious exploitation that a person our people includes South32 Directors, hours worked for employees and contractors. cannot refuse or leave because of threats, executive management, employees and We adopt the United States Government violence, coercion, deception, and/or abuse contractor staff (e.g., labour hire, temporary or Occupational Safety and Health Administration of power (Walk Free Foundation). It includes agency staff, and secondees). (OSHA) guidelines for the recording and forced labour, debt bondage, forced marriage, Paris Agreement reporting of occupational injuries and illnesses. slavery and slavery-like practices, and human A legally binding international treaty on trafficking and the worst forms of child labour Total Recordable Illness Frequency (TRILF) climate change that aims to bring all nations (which means situations where children are (The sum of recordable illnesses x 1,000,000) into a common cause to undertake ambitious subjected to slavery or similar practices, or ÷ exposure hours, for employees and efforts to combat climate change and adapt engaged in hazardous work). contractors. This is stated in units of per million to its effects, with enhanced support to assist hours worked for employees and contractors. MRN developing countries to do so. We adopt the United States Government Mineração Rio do Norte. | | Recordable injuries | Occupational Safety and Health Administration | | --- | --- | --- | | Net cash | The sum of work-related (fatalities + | (OSHA) guidelines for the recording and | | Comprises cash and cash equivalents less | permanent impairment >30 per cent of body | reporting of occupational injuries and illnesses. | | interest-bearing liabilities. | + lost time injuries + restricted work injuries + | | Total Shareholder Return (TSR) medical treatment injuries). Net debt TSR measures the return delivered to Return on invested capital (ROIC) shareholders over a certain period through Comprises interest bearing liabilities, less cash and cash equivalents. Calculated as Underlying EBIT, less the the change in share price and any dividends discount on rehabilitation provisions included paid. It is a measure used to compare our Net operating assets in net finance cost, tax effected by the performance to that of relevant peer groups Represents operating assets net of operating Group’s prior period Underlying effective under the LTI. liabilities which predominantly excludes tax rate (ETR) including our material equity Transformation the carrying value of non-material equity accounted investments on a proportional accounted investments, cash, interest bearing A national strategy in South Africa aimed consolidated basis, divided by the sum of fixed liabilities, tax balances and certain other at attaining national unity, promoting assets (excluding any rehabilitation assets, financial assets and liabilities. reconciliation through negotiated settlement the impairment of Eagle Downs Metallurgical and non-racism. Coal and Illawarra Metallurgical Coal, the Net zero impairment reversal of Brazil Aluminium, and TSX Net zero greenhouse gas emissions are unproductive capital associated with Growth Toronto Stock Exchange. reached when anthropogenic emissions of and Life Extension projects) and inventories. greenhouse gases to the atmosphere are Underlying earnings balanced by anthropogenic removals over a SAEC Underlying earnings is profit after tax specified period. South Africa Energy Coal. and earnings adjustment items. Earnings No net loss adjustments represent items that don’t Senior Leadership Team The impacts on biodiversity caused as a reflect our underlying operations. We believe Presidents and Vice Presidents reporting to result of a development project/activities that Underlying earnings provides useful members of the South32 Lead Team. are balanced (so that no net loss remains) by information, but shouldn’t be considered as Shared value an indication of, or an alternative to, profit or measures taken to: The identification of opportunities that create attributable profit as an indicator of operating 1) avoid, minimise and mitigate negative economic value while also advancing the performance. impacts environmental and social outcomes of the 2) rehabilitate or restore affected areas Underlying EBIT communities and regions in which we operate. Underlying EBIT is profit before net finance 3) offset the residual impacts. SMMEs costs, tax and after any earnings adjustment Occupational Exposure Limit (OEL) Small, medium and micro enterprises. items, impacting profit. The underlying The concentration of a substance or agent, information reflects the Group's interest in South32 Equity Incentive Plan exposure to which, according to current material equity accounted joint ventures and An equity incentive plan that allows the Board knowledge, should not cause adverse health is presented on a proportional consolidation to make offers to employees to acquire effects nor cause undue discomfort to nearly basis. It is not an IFRS measure of profitability, securities in South32 Limited and to otherwise all workers. financial performance or liquidity and may be incentivise employees. defined and used in differing ways by different South32, South32 Group or Group entities. We believe that Underlying EBIT Refers to South32 Limited and its subsidiaries provides useful information, but should not be and operated joint arrangements, unless considered as an indication of, or alternative to, otherwise stated. profit or attributable profit as an indicator of operating performance. S&P 500 Standard and Poor’s 500. SOUTH32 ANNUAL REPORT 2022 187 ### Glossary of terms and abbreviations continued Underlying EBIT margin Terms used in resources and Units of measure Comprises Underlying EBIT excluding third reserves % party product EBIT, divided by underlying A.Al₂O₃ percentage or per cent revenue excluding third party product revenue. available alumina A$/t Underlying EBITDA Ag Australian dollars per tonne Underlying EBIT before underlying silver depreciation and amortisation. dmt Au dry metric tonne Underlying EBITDA margin gold Comprises Underlying EBITDA excluding third dmtu party product EBITDA, divided by underlying Cu dry metric tonne unit revenue excluding third party product revenue. copper g/t Underlying effective tax rate (ETR) CV grams per tonne Underlying income tax expense/benefit calorific value ha divided by underlying profit/loss subject to tax. Fe hectare Water risk iron Kcal/kg As defined by the CEO Water Mandate, Met thousand calories per kilogram 2014; water risk is the possibility of an entity metallurgical coal experiencing a water-related challenge kdmt (e.g., water scarcity, water stress, flooding, Mn thousand dry metric tonne infrastructure decay, drought). The extent of manganese kL risk is a function of the likelihood of a specific Ni kilolitre challenge occurring and the severity of the challenge’s impact. The severity of impact itself nickel km depends on the intensity of the challenge, as OC kilometre well as the vulnerability of the actor. open-cut/open-pit/opencast koz Pb thousand ounces lead kt R.SiO₂ kilotonnes reactive silica ktpa S kilotonnes per annum sulphur kW Th kilowatt thermal coal kwmt UG thousand wet metric tonnes underground m VM metre Volatile Matter ML Zn megalitre zinc Moz million ounces Mt million tonnes Mtpa million tonnes per annum oz ounce t tonnes tpa tonnes per annum tpd tonnes per day tph tonnes per hour US$/lb US dollars per pound US$/oz US dollars per ounce US$/t US dollars per tonne 188 INFORMATION # Corporate directory ## Group Headquarters (Registered Office) Level 35 108 St Georges Terrace Perth 6000 Western Australia Telephone: +61 8 9324 9000 Facsimile: +61 8 9324 9200 Email: Company.Secretary@south32.net ## South Africa Office 39 Melrose Boulevard Melrose Arch Johannesburg 2076 PO Box 61820 Marshalltown 2107 Telephone: +27 11 376 2000 ## Singapore Marketing Office 16 Collyer Quay 18-00 Collyer Quay Centre Singapore 049318 Telephone: +65 6679 2600 ## London Marketing Office 7 Albermarle Street London W1S 4HQ United Kingdom Telephone: +44 20 7798 1700 Facsimile: +44 20 7798 1701 ## North America Office Suite 1850 1066 West Hastings Street Vancouver British Columbia V6E 3X1 Canada Telephone: +1 604 915 5680 ## Share Registrars and Transfer Offices Contact details for the Company's share registries in Australia, South Africa and the United Kingdom are included on page 183. Information about the ADR Depositary, Transfer Agent and Registrar can also be found on page 183. Printed copies of this Annual Report will only be posted to those shareholders who have requested a printed copy. Other shareholders are notified when the Annual Report becomes available and given details of where to access it electronically. This Annual Report is printed on paper that is PTC 'Ponset Stewardship Council' certified and manufactured from plantation grown timber. Both the paper manufacturer and printer are certified to the highest possible internationally recognised standard for environmental management. ![img-8.jpeg](img-8.jpeg) www.south32.net