South32 Limited

Thank you, and good morning, everyone, and thanks for joining us today. On the call with me is our Chief Financial Officer, Sandy Zimbala, our two COOs, Jason Economides and Noel Pelé. I'll give a short summary of our results before handing back to the operator for questions. Before I go into detail about our results, I'd like to talk about safety. Nothing is more important than the health, safety and wellbeing of our people. Tragically, two of our colleagues, Tonello and Alfredo, lost their lives in the fatal incident at Moselle Aluminium in November. Our deepest sympathies remain with their families and colleagues. In response to the incident, we continued our work to fundamentally shift our safety performance and implement our multi-year safety improvement program. Turning now to our FY23 results. Our teams delivered strong production results during the year, achieving annual production records at Hillside Aluminium, Australian Manganese and South African Manganese. We also embedded our recent portfolio improvements in copper and low-carbon aluminium, key metals needed for a low-carbon future. This underpins strong growth in aluminium, up 14%, base metals up 17% and manganese up 4%. This growth, coupled with our focus on cost efficiencies, has resulted in one of our largest underlying financial results to date, with underlying EBITDA of US $2.53 billion, despite a challenging backdrop of declining commodity prices and industry-wide inflation pressures. A record US $1.2 billion was returned to shareholders during the year, equivalent to 11% of our market capitalisation. And today, we have announced a fully frank ordinary dividend of US $140 million or US $0.032 per share in respect of the June 2023 half year. We have also increased our flexible capital management program by US $50 million to US $2.4 billion, leaving US $133 million to be returned by the 1st of March 2024. Looking ahead, The improvements we have made to our portfolio are expected to deliver further growth in commodities critical for a low-carbon future. With low-carbon aluminium production expected to increase by 12% in the financial year 2024 as Brazil aluminium continues to ramp up and we increase volumes at Moselle Aluminium. And Ceragor is expecting... projects to increase future copper production with the plant de-bottling project underway and a final investment decision for the fourth grinding line expansion expected in the second half of the 2024 financial year. We also continue to advance our portfolio of high quality growth options to further increase our exposure to attractive markets. Our Homosa project in Arizona presents a significant opportunity to sustainably produce commodities for a low-carbon future from multiple deposits for multiple decades, with Tomoza recognised as the first mining project to be added to the FAR 41 process in the United States. At the Taylor Zinc-led Silver Deposit, we're on track to make a planned final investment decision towards the end of this calendar year. And separately, we confirmed the opportunity to produce battery-grade manganese and Hermosa's Clark deposit and have signed multiple MOUs for potential customers for future potential supply to North American markets. We also continue to unlock value from Hermosa's highly prospective land package, recently returning our best copper results to date at peak. We are continuing to invest in greenfield exploration options to discover our next generation of base metal mines. During the year, we consolidate our position in Argentina's highly prospective San Juan exercising our earning right to acquire a 50.1% interest in the Chittor Valley copper prospect and acquiring strategic interest in out-of-the-brand resources. In closing, we continue to prioritise a strong balance sheet to fund our growth into structurally attractive markets while retaining our disciplined approach to capital allocation. The outlook is positive as we continue to execute our strategy and our portfolio is leveraged to the increasing commodity demand required for the global energy transition. Thank you, and I will now hand back to the operator for questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Raoul Anand with Morgan Stanley Australia. Please go ahead.

Hi, morning. Thanks for the opportunity. Look, first I wanted to start with perhaps the industrial action that's been talked about re-append. Now, just wanted to get you a bit more colour because we've seen some numbers around the increase that's been offered around 6.5%. But the strike seems to be still going ahead. I wanted to understand in terms of your production guidance for this year, what type of an impact have you already accounted for? And is there any further risk that we should be aware of for this year?

That's the first one. Yeah, Raoul, look, thanks for the question. I probably think more pressing is you would have seen we did talk about a long war in 1980. We are expecting to see some production impact there by actually having a longer outage as we actually get a long-wall move, driven by the regulators looking for an increased setback on Swamp 15A, which has moved from about 6 to 1 metres to 120 metres. As you would be aware, you know, Illawarra has had a strong unit workforce for a long period of time, which we've worked very closely with. We do have one EBA, which you said is currently under discussion. We think when you look at what we've put on the table, it is a very fair and attractive offer for the region. We'll continue to work with the unions as we always do. At this stage, you're going to expect to see any material production impact and we'll continue the dialogue and keep moving forward.

Okay, so just to reconfirm at this point in time, the strike is not part of the production guidance. Is that the right way to look at it?

So the way I think about it, the roles that we're talking about are essentially not widespread across the business. And at the moment, we can safely absolutely run the production as we have. There might be some impacts as we sort of move into the development phase and we sort of control some of that work, but nothing material at this stage. Okay, thank you for that. That's clear.

And look, the second one, perhaps sticking to the cost angle, I just wanted to touch upon Worsley. Admittedly, I was expecting a bit more cost out to come through in terms of the input costs coming down, and we've seen some of those positive impacts start to show for some other peers in the industry. Now, obviously, you're facing a fair bit of labour inflation as well in the part of the world that you operate in. I just wanted to get a bit more colour on how you're seeing some of those impacts and how we should think about them in terms of... you know, moving forward in terms of labour costs specifically? And then you've also talked about energy. If there's any initiatives you can take for a bit of cost out there?

Yeah, that might be a good question. And obviously we have some competitors in this space. I think one thing to sort of understand is what we include in our unit costs is slightly different. So we do include the marketing and the royalty in our unit costs. So that's probably a bit different to some of our competitors down south. Probably the single biggest driver at the moment will be caustic and the impact that that actually has. If you look at our go-forward pricing at the moment based on the budget, you know, we're using roughly about a $600 a tonne caustic assumption. The spot at the moment is probably trading more around the $400-ish mark. So there is potentially some costs that will come out of the business and obviously the other one to watch is exchange. We are in the process of converting... the first boiler from essentially coal to gas. That is included in our plans at the moment. But Costa could be the biggest one to continue to watch how that performs.

Understood. Okay, look, that's my two. Thank you. I'll pass it on. Thanks, Raoul.

Thank you. Your next question comes from James Redfern with Bank of America. Please go ahead.

Hi, Graham and Sandy. I hope you're well. My first question is on copper, please. So copper accounted for about 7% of revenues in FY23. And like most other mining companies, South E2 wants more copper. The media has speculated that South E2 is interested in Comacau in Botswana. Just wondering, how does South E2 think about the Kalahari Copper Belt as a jurisdiction for copper investment? That's my first one. Thank you.

Yeah, so maybe a couple of comments is there. One, obviously, we have strong operating experience in southern Africa or that part of the world. So, you know, we're not sort of phased. I think in all these things, when we look at options for the group, we've been very clear we have a bias towards the base metals because we think they are important as the world decarbonises. I think, you know, when we did the acquisition of Cerro Gorda, we've been very pleased with that acquisition. You continue to see improvements in its bottleneck and financial You also will see the fourth grinding line and we've actually increased the resource and we think there's more exploration potential to add to that over time. So we will look at other copper options at the moment, but we're very focused on value. And from what I've seen, that's probably a very competitive process and one that will be a little bit too rich for our blood, to be honest.

Yeah, thanks. I probably tend to agree, just given the amount of interest in that asset. Turning to manganese, around 900 manganese end demand is used from the steel industry and I know South E2 is excited about the growth of battery grade manganese as an end market. I'm just wondering is that enough to make manganese call for South E2 or do you think that we could see manganese I guess divested in time to focus more on base metals? Thanks.

So look, I mean, I would start with the position that we exist to create value for shareholders. So everything's a sale at the right price. So that's where I'd start with. We've always called out the manganese as quite a different product versus iron ore and met coal in terms of as you recycle steel, you will need to actually add manganese back into the process so you can't actually thrift on the units. At the moment, as you quite rightly point out, the markets are tied, particularly with Not a lot of real estate development work happening in China and also a large build-up, if you like, of alloy products. We do actually see growth in the actual manganese battery space over time. Clark in particular, we think, is uniquely positioned in terms of location. It'll be the only real close to ready-go project in the US that can meet domestic demand. And already, as you think about people moving away from those NCM62 batteries where you use about 17% manganese to the new ones that have been looked at, they're probably closer to 60% to 70% depending on which path you go down. So we do see potential for basically the manganese battery area to develop. I guess from our perspective, location is probably key in this. And this is where we think Clark being located in Arizona in the US is really well positioned. To give you a sense, if you think about manganese demand long-term, so I'm talking about, let's say, calendar year 30, you know, depending on how the uptake goes, we probably have a midpoint of about 600,000 tonnes of demand, but the range could be as high as 1.8 million tonnes, of which we'd probably see North American demand somewhere between 144,000 to 270,000 tonnes. And that's why we really like the location of Clark. You know, one of the opportunities that come to Clark as well is that it actually will leverage off some of the infrastructure that's been put in place at the moment at Taylor, particularly around the deep watering, which is access, power lines, et cetera. The key for us, as we've spoken about, is to actually get enough of a bulk sample to give enough product to basically our customers so they can help develop exactly what they're looking for. And in that space, we've got three MAUs already in place. So now for us, it's about getting that bulk sample and trying to grow the business You know, we do believe you could have a mine life there of seven-plus years if this can actually sort of be successful. There's a lot of work still to be done on it. But from that perspective, you know, we do believe manganese, both in steelmaking and in the battery space, has a role to play.

Perfect. Thanks, Graham. I appreciate the colour.

The next question comes from Khan Picker with RBC. Please go ahead.

Good morning, Graeme, Sandy and team. Yeah, two from me. Just thanks for the maiden FY25 guidance. Just looking at Sierra Gorda, the production guidance there and that flag copper grade. Can you maybe give an indication if Sierra Gorda is meant to hit nameplate by then or is it just on recoveries that, you know, sort of expecting in the 70s in terms of copper production? Thanks.

Yeah, so there's probably a number of items going on there. One is the copper grade is slightly lower for the next two years as we actually walk into the shoulders of the ore body. So there is actually some impact that comes through there. To give you a sense, the copper grade in 23 was about 0.42. It's about 0.38 in 24. As we sort of get out of those shoulders of the ore body and back to the central parts, you're probably getting back to those numbers around 0.42 to 0.46, and probably think about an average after that of about 0.45, at least out to FY41. So from that side, you have the grey benefits. You do actually see the dogs debollinecking starting to come through. We're targeting from the debollinecking project to actually get a target of somewhere around 48 to 49 million tonnes. We achieved that on an annualized basis in quarter four this year. So we would expect FY24 with a target of 3.48.5 million tonnes to actually deliver on the de-bollingerings. That is the key enabler for the fourth grinding line. And that'll be the piece that we sort of look to sort of complete the feasibility study on that in the second half of this year. And typically in that, you'd probably see around a three-year construction phase. And if you look at similar kind of projects, you're probably looking at about 100% terms of capital bill of around $500 million, which we believe would sort of lift your production up from that 48, 49 million tonnes per annum to about 57 to 58 million tonnes per annum.

Sure, thanks. Very detailed. And the second one, more on the aluminium costs. I know guidance wasn't provided, but so if you strip out energy, and Illumina, you know, the other inputs such as pitch and, I mean, what are the expectations over the course of the year?

Yeah, look, absolutely. I mean, first of all, I would call out that Moselle, obviously, we had some impacts from the fatalities we had in November that sort of particularly played into the third quarter of last year, but they were back to full production and quality in the fourth quarter of the year just finished. But I think Hillside, I'd call out Calvin and the team for an outstanding job, and we've had record-load shedding events and other issues going on around us at Richard's Bay. I think they've done a great job. To your point, you know, clearly the inputs that go into the smelter are a big component of the cost base. If you think about the, you know, second half of FY22, if you look at the smelter costs, so coach, coke, pitch, AGM, alumina, as a percentage of LME, aluminium. Yeah, that was about 37% in H2, FY22. First half of 23, it was about 43. Second half of 23, it was about 44. So what are we seeing at the moment? You know, we are seeing the lumina price slowly creep up when you talk about the 24 estimate, and we're seeing the pitch and the coke price starting to come down So, for example, the average pitch price in 23 was about $1,162 a tonne. Spot on the 18th of August was about $1,000. Coke was about $6.83 as an average for 23. You know, spot is now about $540. So we are seeing that downward pressure on those items.

Well, thank you very much. I'll pass it on.

The next question comes from Lyndon Fagan with JP Morgan. Please go ahead.

Thanks, and good morning, Graeme. My first question is just on a bit of a comp between Worsley and Alumar. There's around about an $80 a tonne unit cost difference. Obviously, there were some operating issues at Alumar during the period, but I'm wondering if you can help me bridge the gap on what is driving that spread and where maybe Anumar is in the long term relative to, say, Worsley, just to recalibrate. Thanks.

Yeah, so you will see as years go by that those differentials sort of bounce up and down a little bit. Probably the two biggest drivers in FY23 that made Brazil more expensive, one is you've actually got a higher bauxite costs about the way it actually buys bauxite into that operation from MRM. The second piece is caustic has actually been high in price, but also at the moment we're probably in a higher consumption area. So consumption is about 94 kilograms per tonne in Brazil. As you move into the next mining year in FY24, that probably gets closer to the 70, 80 mark. So you will see some coming off there. If you talk about the caustic costs in the US or the US Gulf, You've probably been running at an average in 23 of $766 a tonne, spot is about $465 at the moment. The other one is obviously in FY23 that we had higher energy costs because the smelters actually tied to a coal-linked energy contract.

Thanks for that. So is it possible to sort of hone in on maybe in a more normalised environment whether you'd expect how much of a spread you'd expect between the two assets, or is it just too hard to put a number on?

I think there's different drivers around bauxite, you know, where you buy your caustic from. But if I was going to have a guy for next year, it's probably within plus or minus $10 worth around that mark. Now, we're not the operator, but that's the way we sort of think about the cost for next year.

Okay, thanks for that. The other one is in the commentary section, It alludes to the bauxite permitting at Worsley being delayed. Obviously, we've got a bit of a schmuzzle for the other operator in the region. I'm just wondering how you avoid that situation, and are you seeing any risks here to bauxite permitting? Clearly, you're nowhere near the water catchment, as you said, on one of the other calls. But, yeah, just interested on some colour there. Thanks.

Yeah, so maybe we'll comment a little bit about where we are and the difference between ourselves and our car. Obviously, they'll talk about their situation better than we will. You know, we have submitted a final environment review document for the Worsley mine development in January 2022. As part of that, we're looking to actually get approved in the Larga area an additional clearance, which gives us a 15-year mine life. We've responded to, if you like, all the submissions that sort of came out of the public review process. And we would expect to get final regulatory approvals in the first half of FY25. At this stage, we haven't seen that we're going to have any issues around the bauxite supply space. And we have a little bit of a buffer if there are some issues, to be clear. And the other one to sort of be very clear on is our long-term approval process is different to our COAS current situation. You know, we are not close to any sensitive water areas. In fact, we're about 15 kilometres plus away. So we have a very big approval process. Outside of that, they're probably best to give you some guidance on where they're at. But very different process and we don't see any challenges in the short term.

Good to hear. I might just sneak a quick one in lastly. On CERO, with the effective tax rate now at 50% to 60%, I mean, can you justify any... any investment to expand or look at some sort of optionality of the asset, or is it sort of just too hard now from a regime, fiscal regime point of view?

Well, obviously the changes that occurred in January we think are very disappointing for the industry. I mean, the country's political situation at the moment is a little bit of up and down. So how long that lasts, we'll wait and see. We did actually trigger with the OSMEC project, which had a very clear and defined payback, an automatic 15-year life extension. I think the challenge for Ceramotota is the sweet spot around nickel production is probably around that 40 to 42,000 tonnes a year. And we have some grey dropping off when you look at our future guidance as we sort of think about the year FY25 and out. We also have an FY36. We actually have a major furnace rebuild coming as well. I think your comment around justifying further expenditure, we have had some inquiries around what can we do to convert the class to the class one type nickel, particularly if you think about the relationship between Columbia and the US. We have historically done some heat leaching work at Ceramitosa, which obviously is low energy, low cost. That's something we'll have a look at. We'll get that work out and redo some of that work. So you wouldn't see it as a large capital investment. We certainly wouldn't see it as a large carbon intensive. But what I would say to Ricardo and the team at CERO, if you think back to when we started the demerger, we've had various projects like Les Esmeralda, then we've actually had the Osmoc process, the team have done a really good job of finding ways to create value. So we're not finished, if you like, in what we think we can be done yet, but we're certainly not looking to put large amounts of capital into Ceramotasia with the current tax structure.

Thanks for that. I'll pass it on.

Your next question comes from Lachlan Shaw with UBS. Please go ahead.

Good morning, Graeme. So a couple from me. So just on the working capital appears to have stabilised. Can you talk to the movements in the second half and expectations for FY24, please?

Yeah, sure, Lachlan. I'll give that one to Sandy. She's itching and raring to go.

Sure. So we did see an inventory build in the period with a Brazil aluminium restart along with Moselle's temporary impacts. We don't really anticipate seeing a significant move on these in terms of the Brazil aluminium component at least. And Moselle, we should see start to clear out in the first quarter of the FY24 year.

Okay, great. That's helpful. And then just on IMC, so a couple of small ones, hopefully. So just on the... the BlueScope contract and the work around dendrobium tons possibly fulfilling there. What's the update? And then secondly, has the thinking changed around how this asset fits in in the portfolio that's tilting more and more towards future-facing commodities?

Thank you.

Yeah, so we use the word bias to base metals for a particular reason. We do see a difference between met coal and thermal coal. You know, met coal today, there is no replacement for met coal. The world is going to need high-quality coal from met coal, which gets produced out of Illawarra. You know, we're very comfortable with the mine plan that we have for Dendrobium now after making the decision not to actually invest in Dendrobium next domain. And certainly Athens, a much longer... you know, timeframe that we have to wait by 38, 39, depending on how we develop some of the options there. So from our perspective, you know, it's paid its way in the portfolio. We have used some of that, obviously, cash generation when we saw the high prices over the last 18 months to actually, you know, finalise our purchase of Cerro Gorda and get more exposure to base metals, in particular copper. Where we sit today with Bluescope is, you know, we have a contract that's been in place for a very long period of time, even before the merger of South32 from BHP. We have a good relationship with Bluescope. We're constantly talking about the updated mine plans. They have a very good understanding of what we look like in terms of what we can deliver. And it's good open dialogue. We don't see any major issues in that space.

Your next question comes from Paul McTaggart with City Group. Please go ahead.

Good morning, all. So you operate in a number of jurisdictions. So maybe could you just give us a sense of how you see wage inflation pressures across those various jurisdictions? And if I could, maybe you could give me a sense, too, of how you see explosives prices at the moment and whether there's a variation across jurisdictions.

Yeah. So maybe if we tackle those piece by piece, if we talk about labour costs, I mean, clearly an area of higher inflation has been in Australia. Now, that is something we've seen in terms of competition for roles. It kind of feels like in some of the functional support roles that is easing a fair bit at the moment, but probably too early to say. Now, obviously, we've got a relatively high level of inflation across about 4.5% to 5% across the Australian region at the moment. If we think about the US, the US where obviously we've got the most of the project coming along, specific roles around electrical work and some specialised roles have actually increased quite substantially, but on average still cheaper than what it would be to operate in Australia. Probably not seeing huge wage pressure outside underlying inflation in southern Africa at the moment. And probably similar, if you think about what's going on in Colombia and Chile at the moment, there are some increases, if you like, on wages, but probably not huge in the scheme of things. Sandy, would you want to add anything different to that?

No, I'd agree with that. And look, I think we've really maintained on all of our union agreements positions that are within or below inflation across the board. So really maintaining our position in the market.

Just on Chile, so obviously BHP, I mean, they call out, you know, wage inflation in line with CPI, which has been $0.17, now $0.12. Do your wage agreements for Sierra Gorda, are you locked into that level of inflation?

We didn't see that level of inflation as we went through our most recent union agreement, so we were substantially lower than that number.

Great, thank you.

And just on your question... Yeah, look, explosives for us, I mean, obviously we don't have the same exposure as you would see for a large operation like Escondina or what the guys see in the Pilbara in Iron Ore, so don't probably have the top of my head have it, but Ben can chase it down, but it's probably a material number for us. Cool. Thank you.

Your next question comes from Glenn Lawcock with Aaron Joey. Please go ahead.

Morning, Graeme, Sandy. Graham, can I just get you to be a little bit more direct? I mean, Illawarra, I mean, I know you say you appreciate, you know, South32 exists to create value for shareholders, but is Illawarra on the block?

I think we probably get asked this question every time we do results, and I guess the answer remains the same. Everything's for sale at the right price, no matter what the asset is. Are we actively out there running a process on Illawarra? No. Do we think Metco still has a role to play for the next 20 years? Absolutely. And that's probably as clear as we can be, if that's helpful.

Yeah, no worries. I guess, is it too hard to run a process while BHP is running theirs, or is it just you don't think it's the right time?

Look, I think in all these things, you have to look at what's happening in the external marketplace, and there are probably a limited number of buyers at the moment. You know, obviously, we do have a long-term contract that sits there with BlueScope. You know, for some people, that might be attractive. For other people, it might not. Again, we're comfortable with where we are with the operation.

Okay, that's great. Thanks, Graeme. And then just maybe kind of draw you a little bit and get your thoughts on costs. I mean, you've given us 24 guidance, and I think almost in every asset, you call out higher labour costs. And I assume labour is, what, in the order of 30% or 40% of your cost base? Maybe I'm wrong. Just where do you think? I mean, if I look at 24's cost guidance, you know, generally it's up on 23. And if I look back, you know, two or three years, you know, costs are materially high now across your business and all your peers. What's the medium term outlook, do you think? I mean, is this the new norm? You know, like where, if you look across your asset base, where could you see material step back down to history, or is this the new norm? Thinking beyond 24, thanks.

Yeah, look, Glenn, I think that is a good question. If you take a step back and look at the broader industry, I do think it perhaps is the new norm across the industry when you think about that medium term timeframe, particularly in many of the commodities where, you know, new production coming to the market is probably not that strong. And even if you are bringing new production to the marketplace, the capital costs are probably more intensive than they were five, 10 years ago. So I think that also will ultimately shape the cost curves in terms of inducement pricing. I think the challenge for us is how can you continue to sort of be one step ahead of your peers in that space? Particularly, you know, for every one of our operations, we have what we call and we think profitability is a threat, and that's something we've had in place for a number of years now. I think we're quite realistic in some places, like GEMCO, where we've given guidance for a long period of time that stripping ratios are going to shift as we move into areas like the eastern leases. You've got a longer trucking distance. How we actually try and get the unit cost down is through some improvements, as you'd expect us to do all the time. but it's actually volume increases. And you're thinking about where the volume increases. Obviously, last year, we had the production record that was actually set at both South African manganese and Australian manganese and hillside. I think Sarah Gorder has the option, obviously, of the de-volumecking project and then the fourth grinding line, which will help at lowest unit costs. But some things like Cannington, you know, we're actually doing more stoves, you know, and the mining's become very different than what it was 10, 15 years ago, so there is upward pressure on costs. Illawarra, I think this year is more of a volume input, particularly around that section, the Long War 19A. We did not expect to get that regulatory commentary around basically having a larger setback. So that obviously means we're producing less as we have a longer time for the Long War move. CRO, you know, is going to be about how we get number of production units in there. But in broad terms, I do think, you know, medium-term inflation is sticking. It's hard to get out of the system. on operating costs probably across the board and also CapEx. And I think that's what you're really seeing this reporting period across the industry of people reporting. That's been the two common things.

And then to take that a step further, Graeme, which prices that you're exposed to do you think will benefit the most from maybe some adjustments to your long-term? Have you been thinking about that and where you see the curve maybe steepening faster than certain commodities that you're exposed to?

They're probably the ones that we would say that we'd probably be more bullish than consensus. I would actually say it is copper. It is zinc. And I'd actually also say aluminum.

Okay. That's great. Thanks, Graeme.

Your next question comes from Paul Young with Goldman Sachs. Please go ahead.

Good morning, Graeme and Sam. Graeme, I have to ask a question on Hermosa, seeing as we had the side visit there recently. A couple of things. First of all, just update us on the dewatering, the commissioning of that plant, just how that's going, because obviously that's key for the shaft construction and underground development in general. And then I know the feasibility study is coming up, but just with the recent write-down on the asset and talking about inflation, and CAPEC going up on the PFS. What sort of inflation have you seen across some of the packages, you know, that have gone up? And I think you did call out steel and electrical across sort of the plant and underground development. Any sort of thing you can add and sort of help us out, you know, what's actually occurred would be helpful. Thanks.

Yeah, so, look, I think that's a good question to ask. I mean, what I would start by saying, you would have seen we're now publicly talking about increased mine loss at Taylor from 22 to about 30 years. We are talking about CLARD going up to about 70 years. And you would have seen the total resource at Taylor grew by about 11%. And importantly, as part of the study work, the measured resource is up by 41%. And certainly, if you look at the early mind of your life, we probably got higher grades in the prior estimates. And again, Taylor still opened a number of directions and adepts. And the other one obviously interesting for us would be the peak deposit where we've now dropped about 17 holes. And of that we have four holes around 100 metres apart that are all running over 1% copper between 50 to 100 metres thick. So I'll tell you that the prospectivity of the land package continues to be attractive. But I think the impairment is important to understand it's a non-cash impairment. And it's based on the Taylor deposit as it is in the pre-feasibility. And pre-feasibility, it's not based on the upside of what we can add there in resource. It's not based on what Clark can deliver, because that's a separate unit. It's not based on anything like peak. And it's one of those things around the timing impact. What has been disappointing, we've made no sort of bones about that, is We are moving more water than we expected. And that's certainly, if you like, given us, if you like, delays in terms of, you know, probably two and a half years and probably another 18 months for COVID. So we've lost some time there. And about $365 million more capital for the dewatering. What I can tell you is water treatment plant number two, Paul, that you would have seen when you came for the site visit, is being commissioned. So it has been commissioned both dry and wet. So that's up in money. Probably the two most important holes were sunk around the shafts, and they've been executed to plan in terms of where we want them to go. They will now be in the process of starting to dewater, and we'll probably have a good sense over the next eight weeks what that looks like. But so far, there's no major surprises there. But until you start pumping the water out, you're not completely sure. And the other holes are on track around the dewatering. In terms of, you know, what are we seeing in the statewide cost escalation, Again, I think the only one we had good line of sight of when we actually had the analyst tool was around the shaft sinking at that stage, and that is pretty well held up. Where we have sort of seen increases, as was spoken about in the past, has been electrical, the concrete, and even fabricated structural steel. So to give you a sense of some of those areas, you know, the Industrial Building Construction Index has increased by about 37%. So I'm talking about between January 2021 and May 2023. Concrete's up by about 29%. Steel's about 60%. And construction wages, you know, I made the comment earlier, we haven't seen moving operating wages, but specific construction wages are probably up about 13%. Now, again, we're coming close to finalising the study. We will do as we always do, a comprehensive dive into that to understand what it looks like, and then we'll take it to the board from the back end of this year for a final investment decision.

Okay, thanks, Graeme. Look forward to the study outcomes. Second question's on Brazil aluminium. It's one of your key, I guess, growth projects from a volume perspective. This smelter, looking at the guidance, it's a four-year ramp-up. I've never seen an aluminium smelter restart and take four years to ramp up. And I know in the past you've spoken about some challenges with the old pots, et cetera, but can you maybe give us an update on... Again, why it's taking four years to ramp up. And then, secondly, you know, can't obviously use the costs that you've just reported as a go-to. We need to look at the fixed and variable costs. Anything that maybe Sandy can chip in and add about, you know, what is the... Are the fixed costs, you know, 25% similar to SA smelters? And, you know, are the full fixed costs reflected in the FY23 cost base?

I'll get Sandy to go through that in detail. Generally, we've spoken about the cost structure is not dissimilar from Moselle if you think about how to split the costs. Look, I mean, Alcoa is the operator and they started the restart in June 2021. You know, the smelter had been in a period of care and maintenance since 2015. There is no doubt that the restart has been disappointing from an Alcoa and our perspective and has really underperformed with some of the key issues, particularly in the early days, relating to alumina, baths and the compressor area. And that was followed by assessment of the pot conditions, which ended up being worse than they actually anticipated. And certainly we saw a number of significant early failures. Longer term, craneage is probably the, you know, the crane availability is the next issue. They're running at about 70%, where it needs to be closer to 90%. And that impacts, I know, change out the metal tapping, the pot restart program. Now, in saying that, we are seeing them slowly now move into position where line one is you know, is completed. Line two was well advanced with about 65% progress and expected to complete ramp up by March 2012, 2023, which has obviously happened. It is more now ramping up the third line, which is probably about 55% complete. They currently have about 500 pots out of the 710 in operation. From our view, there was, you know, We probably had always a slightly more conservative view than they did in terms of the ramp-up, but it's certainly proven to be more challenging than they expected, and to be honest, what we expected. Maybe Sandy, around the cost, just to give Paul some colour.

Yeah, certainly. So in terms of the operating costs, we do anticipate it will have a similar structure to our other aluminium operations with around 70% variable and 30% in our fixed cost space. Obviously, we'll be heavily resilient denominated currency there, so we will be exposed to that through the period. It will also be powered by 100% cost, by 100% renewable power under long-term contracts with a mix of hydro and wind, so positively they are secured for the long term. We do expect our break even, like our pricing to ultimately, our costing to ultimately land close to those of Moselle. So if you're looking for a reference, that's the best reference point.

So Paul, no, you know, performance has been disappointed by the operator. We try and work closely with them to try and rectify that as quick as we can. You might argue we're probably being slightly more conservative now, but they've had two days of forecasts that haven't been met, so we're quite cautious now.

Okay, thanks. Sandy, just to confirm, you're saying that fixed costs 30% of the total cost base. Is it all the fixed costs carried in FY23? Is there more labour, you know, fixed cost components being added this year as you ramp up?

We're not expecting materially more fixed costs being added. We do really see more than variable coming into play now.

Excellent. Perfect. Thank you.

Once again, if you wish to ask a question, please press star 1 on your telephone. Your next question comes from John Schultz with Macquarie. Please go ahead.

Good morning, all. Just a question on the outlook for South Africa. If you can give us just how you're thinking of the country, any operations there? I notice there's no growth in the portfolio. It doesn't seem to be a particular focus.

Yeah, it's an interesting one. I wouldn't say there's no growth options in the portfolio, particularly in the Kalahari with manganese. There is the ability for us to substantially shift the production coming out of vessels. Yeah, they did set a production record last year. I think the bigger challenge at the moment is probably the performance of Transnet and what the next contract might look like in terms of transportation of manganese by rail and obviously to the port handling. So that probably is the key to unlocking growth potential in the Kalahari. When it comes to Hillside, we're investing in AP3XLE, but that is really about energy efficiency, not expansion. And, you know, clearly that has to be the objective when power is a constraint. Richards Bay, I mean, I was there three weeks ago. I mean, I think the team there continue to run a really good operation in quite challenging circumstances with additional coal trucks coming through. But also, as I said, record load shedding that hasn't actually had an impact on us. So I think the team there have done a good job. We're quite clear, you know, what we're looking to grow the group in is the base metals business. So we will have a look at geology in Africa. If we can find the right thing, we'll have a look at pursuing it. But it's going to stack up against other growth options we have in the US, South America, Australia, wherever we operate. I think the one we shouldn't forget, we did increase our stake in Moselle a couple of years ago when Mitsubishi sold out. You know, that was a really good deal with a short-term payback. So it made absolute logical sense to do that.

Excellent. Thank you. And maybe just on GEMCO updates on the eastern and southern leases?

Yeah, so GEMCO obviously is something we've talked a fair bit about for the period of time. We do expect the first ore to come out of the eastern lease south in FY25. That gives you about one and a half year mine life to FY28. CapEx, you know, we've got in the 24 estimate of about $35 million for that move and about $9 million in FY25. We're also doing some more work on what's called the Eastern Leases North, which adds probably about another half to one year. And then the Southern Areas have about another two years and we expect to complete a pre-feasibility study on the Southern Areas by the end of this calendar year. Okay, thank you.

Your next question comes from Paul Young with Goldman Sachs. Please go ahead.

Hi, Graeme. Just to sneak a few in on the theory of Gorda. First, just on the resource upgrade, I guess you can call it that. You just stepped through how much of that was based on drilling, how much of that, from a tonnage perspective, could have been on changing the cut-off grade and any sort of sense of how that impacts life of mine grades and grade profile.

Yeah, so look, Paul, the first thing I'd say is it's the first time we've put out a mineral resource estimate. And as you know, we use it as a foreign estimate as part of the acquisition. We have a certain timeframe to do the resource work. The team have done that resource work within the timeframe they needed to. You know, obviously the next piece for us would be if we do the mine plans to actually look at the reserve and resource, et cetera. From that perspective, you know, the estimate was about 1.89 billion tonnes at about 0.41 copper equivalent. Now, if you look at the acquisition case, that's probably about a 47% increase, of which mainly the increase is in the inferred. There's about 34% contained copper metal increase. But overall, the grade is sort of a bit lower from about 0.36 to 0.4. The resource itself is still open at depths. and we're going to have some more drilling campaigns to sort of test the potential for future growth. Graeme would have been consistent at a lower cut-off price, so I wouldn't sort of focus too much on that. For me, it's going to be more about the more drilling work and exploration we do over the next 12 to 18 months, and also as we sort of push in some of the new areas, we have found some interesting targets we'll continue to pursue.

Yeah, that's great. Thanks, Graeme. And then second one, just on the fourth milling line, and a I think we touched on this in the past, but, you know, I was in the region late last year and, you know, KGHM seemed like a little bit more upbeat on the timing and wanting to get on with the fourth milling line and construction and approvals. So is it really contingent on betting down the de-bottlenecking and getting the HPGRs and just the front end of the circuit working? You know, guys, you've got to get this working before we commit to, you know, the larger project? Or is it more around... the re-estimation with, you know, escalation and also just labour availability?

Yeah, look, I think at KGHM, I obviously are keen to always progress this stuff, which I think is important. At the moment, we probably have a bit of a difference of when the study will be finalised and peer-reviewed. So they're talking about quarter four, calendar year 23. We're probably one quarter later, so I don't think we're back at two different falls. I think for us the key is they're just betting down now that your bottlenecking project for that lifted production to about that 48.5 million tonnes, which they achieved that on an annualised basis in the fourth quarter. That's been a key enabler for the fourth grinding line expansion. The other key component there was to actually commission and finalise a third tailings thickness and achieve solids of over 60%. You know, in June they've got that now to about 61.7%. So from our perspective, now it's about finalising the study work on the fourth grinding line to take it forward. If they can progress the work faster, we're obviously not going to slow it down. Obviously, we'll make sure we have the right technical and financial checks in place. But at the moment, we're about a quarter different. So I don't think we're majorly different.

Thanks, Graeme. You're always out of the detail. Appreciate it.

Your next question comes from Lachlan Shaw with UBS. Please go ahead.

Thanks, Graeme, for taking my question. Just a quick one. So CapEx guidance for FY24, a little bit of a step up there. I'm just wondering how much of that is scope versus inflation?

Yeah, Sandy, you can take that one.

Yeah, sure. Look, it's predominantly scope. Whilst we have seen some inflationary elements bleeding into our CapEx profiles, the bulk of the movement in the upcoming year is related to scope. So we have a number of activities across our portfolio that are important, particularly for our safe and reliable operations, you see that stepping up with planned activity consistent with our life of mine plans there. And then obviously into the growth program, that will heavily depend on the FID outcomes for our Taylor FID decision planned for November and the board's grinding line decision, which Graham's just alluded to.

Yeah, great. Thank you. So maybe if I can So let's step up more scope of work, but maybe not quite keeping pace with production guidance. So is the other way to say that this is increasing intensity of safe and reliable? Is that fair?

I wouldn't say that's necessarily something we're expecting to see. There are specific activities across our operations that are particular to this year. So if you look through the operations, you can see it in each of the guidance notes. So for example, if you think about Illawarra, which has a significant increase in FY24, it does relate to Vent Chart 7 and 8, allowing us access into area 7 there. And that's just part of the long-term mine plan, but it is obviously crystallising in the FY24 year. So that's an example of one where it is consistent with the mine plan, but not something we expect to see in the long-run averages.

Okay, so in terms of taking that forward then, we shouldn't be looking to bake in that FY24 as fully the new level, if you like.

No, we'll be baking that in as a standardised new level.

Okay, that's fantastic. Thank you.

The next question, apologies, there are no further questions at this time. I'll now hand back to Mr Kerr for closing remarks.

Thank you and thanks everyone for joining us today. Looking closing, we continue to prioritise a strong balance sheet to fund our growth in structurally attractive markets while retaining our distant approach to capital allocation. We still believe the outlook is positive and we continue to execute on our strategy and our portfolio is well leveraged to increasing commodity demand required for the global energy transition. Thank you very much for your time today. I'm sure we'll see you on the roadshows over the next couple of weeks.