South32 Limited

Thank you for standing by and welcome to the South 32 FY24 results investor and analyst call. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Graham Kirk, Chief Executive Officer. Please go ahead.

Thank you and good morning everyone and thanks for joining us today. On the call with me today is our Chief Financial Officer, Sandy Sabunala. Financial year 2024 was a pivotal year for our business, a year in which we accelerated our portfolio transformation towards commodities critical for a low-carbon future. Before I go into more detail on the milestones we achieved this year, I'd like to talk about safety. We assess our safety performance through a range of both leading and lagging indicators. During the year, our significant hazard frequency, a leading indicator, increased by 34%, indicating a positive reporting culture and increased hazard awareness. Our total recordable injury frequency for FI24, a lagging indicator, also improved by 14%. However, our lost time injury frequency rate increased by 19%, underscoring that while we have had a fatality-free year at our operations, we are still seeing too many serious injuries and we must be relentless in our pursuit of a safer workplace. During the year, we also continue to embed our safety guarantee across our business, which is used to instill a belief that everyone can go home safe and well and create a sense of chronic unease and to assist to reduce risk tolerance. Turning now to FY24 results. Improved operating performance, disciplined cost management and high commodity prices supported stronger financial results to finish the year. We recorded FY24 underlying EBITDA of $1.8 billion and underlying earnings of $380 million and lowered net debt by $320 million in H2 FY24. Reflecting our strengthened financial position and disciplined capital allocation, the Board has resolved to pay $140 million fully franked ordinary dividend in respect of H2 FY24. The Board has also resolved to allocate $200 million to our ongoing capital management program to be returned by an on-market share buyback. During the year, we achieved significant milestones that have transformed and simplified our portfolio. Construction of Hermosa's Taylor Zinc Led Silver Deposit is progressing to plan, following our final investment decision earlier in the year. Taylor is expected to deliver attractive returns over multiple decades, increase our supply of commodities critical to a low-carbon future, while sustainably lifting margins due to its first quartile cost position. At the first stage of our regional scale opportunity, Taylor will unlock value for future growth phases at Hermosa, such as the Peak Deposit, where additional exploration results announced today highlight the potential for a continuous copper system connecting Peak and Taylor. The sale of Illawarra Metallurgical Coal for up to $1.65 billion completed earlier this morning. This will unlock value for shareholders and streamline our portfolio to be focused on base metals, zinc, copper and the aluminium value chain. While also simplifying our business, reducing our sustaining capital intensity and strengthening our balance sheet to self-fund our growth options at Hermosa, Cerro Gorda and our pipeline of options in study and exploration phases. improving our portfolio and providing shareholders with high-quality exposure to growth and attractive commodities. FY24 was not without its challenges. At GEMCO, we suspended operations following a significant damage to critical infrastructure and widespread flooding due to Tropical Cyclone Megan. We have commenced a phased return to phased mining activities and expect to recommence wharf operations in Q3 FY25 returning to normalised production rates in FY26. Our insurance have confirmed that damage from tropical cyclone Megan is covered under our property damage and business interruption insurance, and we continue to work with our insurers to assess the timing and value of recoveries under these policies. We expect to receive the first insurance instalment this quarter. At Worsley, following a five-year process, the West Australian Environmental Protection Authority recommended that a development proposal in respect of the next mining areas be implemented subject to conditions. Several of these conditions go beyond reasonable measures for managing environmental risks of the proposal based on scientific assessment and decades of operating experience. They are also not practical and inconsistent with our other government regulation and policy. We have lodged an appeal and we are working collaboratively with the WA government to secure environmental approvals with reasonable conditions by the end of 2024. Despite these challenges, I'm pleased to report we've had a strong finish to the year with improved operating performance, a strengthened financial position and the restart of the on-market share buyback. We remain focused on driving operating performance across our business. We have transformed our portfolio and have a strong balance sheet to self-fund our growth in highly attractive end markets. And our unchanged capital management framework is designed to reward our shareholders as our financial performance improves. Thank you. I'll 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 Paul Young with Goldman Sachs.

Yeah, morning, Graham and Sandy. Hope you're well. Graham, good to see the buyback being reinstated and also the completion of Illawarra. A few questions actually on Worsley. No doubt you'll have a few more. Just the first thing to point out, some good cost guidance I think for FY25 and I know you've given a target I think from FY27 on production of 4.6 which is good to see but I presume that assumes that you obviously will get your permits from the EPA. So just that's the question, just the confidence around why you think you'll see a resolution on this by the end of this calendar year and how do you actually find middle ground here with the EPA?

Yeah, thanks, Paul. And look, really a good question. I mean, just to sort of cover some of the context for the people on the call, the current approval we are seeking will cover the next 15 years of bauxite mining from our perspective. It has been a process that began with the EPA in 2019. And it's fair to say it's been a long, frustrating process where we've had multiple chairmen, multiple case officers. And as the own WA government report outlined at the end of last calendar year, the EPA has some serious challenges that need to be fixed. We got a hold of those conditions on the 8th of July. And those conditions, from our perspective, were a surprise. were not as expected and certainly go beyond what we believe is good scientific evidence and also, if you like, some of the discussions that were held along the way. A great example of that would be around greenhouse gas emissions where the addition of Scope 1, Scope 2 and Scope 3 is quite alarming, particularly how some of it's been measured, but also that it goes well beyond the federal safeguard mechanism in terms of changes it's looking for And because of the nature of scope to electrification of the system that is ultimately required in the southwest, would put a lot of the businesses in the southwest of WA at risk. That's just one example of the things that we think, if you like, are very disappointing and really ignore scientific assessment. To date, the government has been quite clear that there is a process that is legislated that needs to follow. The process has been for the EPA, which is an independent body, to make their assessment based on various public submissions and their own scientific work. What we have seen from the government now was a commitment around the appeals process and a commitment to come back with a final decision on the appeals just before the end of November, sorry, the start of November, so they can then actually ensure that the minister can make a decision then. The appeals process will be based purely on scientific evidence. It won't take into account things like social impacts, job impacts, community, et cetera. But the appeals process will make recommendations to the Environment Minister. The Environment Minister then, for the first time, has the ability to consider all those other issues. What we are comforted by is there's been a really strong engagement at various levels by the WA Government, which has been really good. I've had a lot of those meetings with the premiers, as have our other senior people. They have certainly committed on the schedule. They've provided enough resources to ensure that the appeal process runs smoothly, because that's one of the challenges for the EPA. And they've certainly been very forthright on their commitment. that this will be resolved in early November, which then allows us 30 days for a federal approval. We really need the approval by the end of the calendar year. That then allows us, if you like, to be in a position that we can start seriously getting into the new mining areas in the first half of the next calendar year or towards the back end of that. You know, we could always run the refinery under these conditions, but it Very much puts it under, if you like, economic viability a threat, in particular the greenhouse gas issues. But there are other issues as well that we'd look to see to be resolved. There are broader implications if this is the path they go down in the EPA in terms of offsets. but also greenhouse gas emissions that will impact every other resource and potentially infrastructure project in Australia, in WA, sorry. So it is very alarming for the WA government. And also in the background context, when you look at a number of our competitors in lithium, even iron ore, nickel, have been shedding a lot of jobs in WA, which is probably not something the WA government's seen before. And particularly if you think about a state election coming up in the first half of next calendar year.

Okay, thanks, Graeme. Good context. And then maybe moving up to GEMCO. Good to see that, you know, I guess you've got the confidence that you can, you know, get up and running again in the June quarter of next year and also the insurance offset is probably the fastest agreement I've seen from an insurance company. I post an event like this, so I'm interested in your views there. But just on actually the rebuild of the birth, you know, what actually can you tell us around... the contractor mobilisation and the confidence about actually getting this project, which is quite a specialised project, actually completed by March next year and through the wet season.

Yeah, thanks, Paul. Maybe a little bit of context I think is also useful there because I think it sort of leads into your story, your question. I mean, when you think about that, it's not like gem cones are immune to cyclones. This is a regular event that occurs multiple times a year up there. What is very different in this situation was the size and the speed of which this cyclone actually came in. To put it in perspective, you know, we had 681 mils of rain in a very short period of time. Second highest ever wind gusts, which were recorded at 87 kilometres an hour, and that resulted in mass flooding, storm surges and intensive waves and wind conditions in the port. To put it in perspective around water volume, you know, typically coming out of a wet season, we'd be moving about 10.5 gigalitres. We're actually this year having to deal with 36.3 gigalitres of water post-tropical cyclone Megan. So that's, you know, if you think about it in percentage terms, that's 346% above the norm. So the wharf is not the only piece of work that needs to be done here. There is a large piece of dewatering. There's a large piece of rebuilding bridges, et cetera, that connect the different mining areas to get equipment and people back and forth. The walk itself, the contractor is engaged. Some of the long lead items have sort of been already ordered. Barges are set to sort of arrive, et cetera, et cetera. There's probably two things that are obviously on our mind. One, obviously, is, you know, we do expect more weather events and cyclones up in that part of the world, so we will have an allowance for the wet season and cyclone activity. Demolition, to me, will be the biggest issue. So demolition... There's a nice visual diagram that we have. There will be a series of existing pillars off the old wharf that we'll work off the back of, but then there will be a series of other pillars that, if you like, are damaged beyond use, and some of the infrastructure will still be connected to both of those pillars. So the first part of demolition will be to actually cut away a number of those interconnecting pillars and the infrastructure that's walked around that. And we will simplify the design of the port ultimately. We have 230 poles at the moment and we'll go to 28 poles with the new design. So from that perspective, the demolition piece for me is the most critical piece. That's not too far away from being started. That is a big focus for us on the safety perspective in terms of understanding the stored energy as we cut away some of those pieces of equipment. The good thing is we have a highly experienced contractor who's worked in this part of the world. They are mobilised, they're up there on site now, and we'll keep updating the market to that. We are certainly aiming to get back to the poor use by the third quarter. We'll start producing, obviously, but won't get to full production to the following year.

OK, thanks, Graeme. Good detail, as always.

Your next question comes from Rahul Anand with Morgan Stanley.

Hi, good morning, team. Thanks for the call. So first one, I just wanted to follow on from Paul on Worsley. Look, in terms of, you know, obviously the EPA process, I think you're working as closely as you can with the government to sort that out. But I want to understand that. How do we think about the impacts if you do have delays. So are you able to provide any sort of sensitivity in terms of how we should think about your OPEX at Worsley? And, you know, if you don't get the approvals in time, when do you start seeing some of those impacts? Just noting your FY26 guidance as well, which is below nameplate again at 3.75 million tons at Worsley. So that's the first one. I'll come back with the second one.

Yeah, look, maybe if we sort of think about this in components, the Worsley business has a large fixed base in terms of its cost business. So volume makes a big difference in that space. You know, in FY25 and 26, to your point, we're not at nameplate capacity as we sort of, you know, have restrictions about the current mining areas that we can mine in. but also the quality of the material we are mining, where you have lower grade and you have more reactive silica levels. As a consequence, you'll be using more caustic soda than what Worthy would typically use. You know, this year in 24, we sort of ran an operating cost around $2.69. That includes marketing. If you back out the marketing number, we're running at about $2.60, which means, you know, we'll probably be running next year, we've given guidance around... the 280-ish kind of number. And as you get into some of that lower-quality material in the following year, you're probably looking around $300 a tonne, a worst-case scenario. That's probably around the mark that you have in terms of lower aluminium or alumina content, but also what you're seeing for reactive silica. I think the bigger issue for us is this is such an issue for the long-term viability industry of the business that we would be stronger probably in our position if we don't sort of get where we need to be, which we think is a sensible logical outcome. You'll have a look at other options you have around Worsley in terms of do you have to consider contailing for a period of time. So we think we've got, you know, a bit of time up our sleeve to sort of mine this area in terms of the delays and approvals. But anything that probably went beyond the 12 months would be much more challenging for us. Now, again, I would sort of... If you think about what we're looking at here, these offsets are not unique just to Worsley. The greenhouse gas emissions targets that the EPA has come at are not unique just to Worsley. This is a much bigger issue for the West Australian government to deal with than just Worsley.

Got it. No, that's very comprehensive. Thanks, Graeme. And look, the second one's around South Africa and Manganese. So if you think about that business, we've talked about the trucking volumes for some time now and how we've kept them in the system given the economics. Could I perhaps get a quick recap on sort of where the manganese price needs to be to keep those trucking volumes in the system for you, i.e. what's the cost sensitivity there? And then any sort of update on the transnet volumes then.

Yeah, so maybe let's take that into components. If you look over the last 12 months, it was great to see that HMM actually had a production record come out of the business. Obviously, it's been a favourable market around price that we've seen over the last period of time with Jemco closed in. If you think about what sort of trucking we look at, we will put, where it makes economic sense, volume on the trucks. but where we can, we opportunistically take as much as we can in terms of rail capacity. Now, there is a new MECA contract coming into play that they made a decision last year to allocate about 15% of the actual rail component or capacity, if you like, towards junior producers. That was not something that junior producers are able to take up at the moment because they certainly don't have... the, if you like, loadout facilities and the loop facilities to actually handle that. So that's something this year or the years just past, we've managed to get opportunistic trains and not really lose any of our slots on the rail. As we move into FY25, the bigger challenge at the moment for Transnet is they've got a number of issues around port congestion at Port Elizabeth, and that probably is meaning that while we're not seeing the dunes take up any capacity... we are seeing challenges about actually getting the throughput that you'd normally expect to get on the rail line subject to that 15% being allocated to juniors. So as a consequence, we have a bit more of an assumption around trucking, which really pushes up, if you like, our unit costs. Now, in that, I think there's more upside than downside, and if they can sort through that congestion issue at Port Elizabeth, and again, I would struggle to see that the juniors come online in time to use some of that 15% capacity. I do believe there's an opportunity for us to get more volume on the actual rail, but until we're sorted the congestion issue at Port Elizabeth, or they have, we're not banking that into our base numbers. You talked about where's the cost efficiency. Look, it sort of fluctuates between that $4.30 to $4.60, $4.65, depending on your fuel assumption and your exchange assumptions. As a general rule, 44 SIF equivalent, we usually talk about $4.50 is kind of the number.

Got it. No, that's very clear and comprehensive. Thank you. I'll pass it on.

Your next question comes from James Redfern with Bank of America.

Hi, Graham and Sandy. Hope you're well. I was going to ask about Worsley and Jim Cabot. I think we've covered that pretty well. So maybe if we switch to your end markets, so Aluminum and Aluminum is two-thirds of your pro forma revenue. Can you please talk to your outlook on those two commodities, please? Thank you.

Yeah, look, absolutely. I mean, obviously, when you look at the Aluminum space at the moment, We've had a good market over the last period of time, and some of that obviously has been driven by some of the restrictions you've seen on the supply side. I mean, obviously, the Catawba of Granada came into effect fully at the end of last financial year for us. You've obviously seen some of the challenges in Queensland around production, but also there's been some challenges in China. So as a consequence... You know, we're seeing aluminum that's actually been quite strong in terms of demand. We're seeing a few more force majeures happening at the moment. And we're seeing lower Guinea bauxite coming out mainly due to rain season. So, you know, we're seeing stronger demand probably, if you like, in the short term coming out of Indonesia, Europe and China. So we would probably expect to see those prices remain elevated in the second half of this calendar year because of those supply side risks. If we think about the second part of the calendar year, we probably still see the market in deficit around alumina with 100% of the supply making money. And then we probably see it flipping into a slight services calendar year 25. So I'd say for the next 12 months, we probably see a pretty healthy alumina price sitting in the marketplace. Aluminium, on the other hand, has been a bit more interesting. I mean, aluminium has had some prices, if you think month on month, has probably fallen roughly 4% to 3%, depending on which exchange you look at. And that's been driven by demand concerns, especially with regards to US-EU trade tensions with China and declining investment fund demand, which is down about 10% month on month. However, we probably do expect to see some of those prices improve, mainly driven by US dollar weakness. We're seeing some improvement in investment demand, and we're seeing some buying interest, if you like, coming from China. And also, we're starting to slowly see a little bit more coming from the other part of the world, particularly Europe, but at a low base. We don't believe that China will move away from some of the stabilisation measures they've got in place and their adherence to that 45 million tonne capacity cap. And we continue to believe that that will actually stay in place. So alumina, strong for the next 12 months. Aluminium, you know, probably a bit more upside on economic demand, but also some of the substitution from copper to aluminium.

Thanks, Graham. Maybe just one on Worsley, if we turn to that, please. So, I mean, the share price reaction a few months ago was pretty brutal when you made that announcement around the EPA ruling. The reality is that you do have approval to mine for another 15 years, you know, for balks up mining at Worsley, but the issue is they've higher costs. Can you please maybe talk to... We'll provide some colour around those costs with regards to either unit cost of production or... is a cost of buying carbon offsets to meet the EPA's, I guess, requirements, if you like.

Thank you. So it's probably across, James, a number of different areas. You know, clearly it's reflected in the unicost. Part of that will be driven by the fact that you do have to buy carbon offsets. That'll probably be the biggest one by quite a magnitude. I think the other piece is some of the restrictions around buffer zones and making green corridors and offsets almost become unworkable in some mining areas. So you're sterilising large amounts of material, which obviously has an impact on the economic development of an area. Probably the third area that will continue has an impact on costs is the reporting and compliance is increased by a magnitude that comes at a cost. But I would say if you're thinking of the big one that really will hurt the unit costs, it really is around the greenhouse gas emissions and what you need to do to offset those. Okay, great. Thanks, Graeme.

Our next question comes from Colin Peaker with Royal Bank of Canada.

Hi, Graeme and Sandy. Thanks for the questions. I just wanted to have a... Just a question on Ceramitaso. Maybe if you can give an update on cost initiatives there. It seems like the unit costs were a little bit higher than expected, sort of flagging lower grades. But, yeah, just an update on Ceramitaso, please, and I'll circle back with a second.

Yeah, no problem. It's just sort of useful in that space. There's a little bit of... offset, you know, maybe a little bit of context before we get into some of the work that people are doing to offset the decrease in price that you've seen. Cero itself, we've had a strategic review underway now for a period of time, but we always talk about that being broken into two parts. The first one was to make sure for the financial year just finished that that they could actually turn the ship around, if you like, and get to a cash positive position, which has been the focus and which they actually achieved in the second half of the year. Longer term, we've been looking at ownership options and we're looking at the flexibility of the business. You know, CERO as a business has obviously been running for a period of time, has grade decline occurring naturally in the main pits and over the last five or six years with things like Les Esmeralda, QMP, we've managed to bring in satellite ore bodies to sort of prop up the grade. You probably need to produce roughly 41,000 tonnes of nickel a year to make that place profitable through the cycle. You know, with the grade declining, that's a challenge. So the value-add opportunity they're looking at is, are there more satellite ore bodies we could bring in, local, but also a little bit more in terms of distance? The other piece they're looking at is, could you, with some support under the IRA Act, contemplate producing a MHP-style product, particularly with the agreement that exists with the US on the trade agreements. I think ultimately, though, the question for us is also, do you want to be the owner of that business long-term? The single biggest thing that's been in the way of that has been some of the disputes that have been going on with the government around royalty and tax changes. If you recall, probably about 12 months ago, they rolled out a series of changes that probably hit the NPV by about a third. That included changing withholding tax rates, changing how royalties work. We've been working under an arbitration dispute with them to try and resolve some of those issues. The good thing is just after, well, towards the end of our financial year, just after, we had that case heard and we won that case. So that sort of takes away some of the uncertainty long-term around some of those proposed legislative changes, particularly around the royalty. We have one more legal dispute going on around the royalty that we hope to resolve in the next period of time. I think then that creates a very clear option about what you do with the business. So you look at the value-add product, such as the additional ore source. You look potentially at selling it, or you actually look at putting into care and maintenance to see what happens with the nickel price. But I think resolving those legal cases is critically important to that. The biggest one of those we have resolved. We will now move on to the second one while completing the review in the background. The challenge on the business, obviously, in that period of time is to stay cash neutral. And Ricardo and the team, you know, if you think about entrepreneurial spirit and adjustment to market conditions, they've had a really good, strong track record of doing that. There are certainly some challenges in front of them on that.

Sure, thank you. Very clear. And over the second month on Sarah Gorda, I saw the Maiden Jork Reserve. I haven't gone through it all, but just wondering how this supports the fourth grinding line decision. Thanks.

Yeah, what I would say is we think about what's going on with Sarah Gorda and we think about that. Obviously, the work that we've done has been very much around the compliance exercise and to actually follow an estimate and move it, if you like, into the first time we produce an ore reserve and a mineral resource update. What I would say is the reserve life of 16 years is at about 48 million tonnes. That gives us roughly an operating life of 24 years. That 24-year life is underpinned by 1.1 billion tonnes of mining inventory, comprising 70% of ore reserves and 30% of inferred resources. Yeah, that broadly is aligned with the depleted foreign reserve from acquisition. What we do still see is significant growth potential and resource conversion as we continue to do further infill drill programs. But on top of that, there's also some exciting exploration projects around future ore bodies there and extension of ore bodies. So I think it's a good first step to keep watching that space for it to grow.

Thank you. I'll pass it on.

Your next question comes from Lyndon Fagan with JP Morgan.

G'day, Graeme. Thanks for the call. Just back to Walsley and the half a billion impairment charge. You've obviously said in the release today that we're back at nameplate in FY27 potentially and that the major cost issue is the greenhouse gas emission offsets. What have you assumed or what have the auditor assumed in terms formulating that impairment charge. Just be good to get some colour on how we model that. Yep. And I've got a follow-up after that.

Okay. I'll let Sandy, you can deal with the impairment and have the auditors look at it.

Great, thanks. So you recall we carried a significant book value at demerger. So in looking at the impairment, obviously, we consider that book value relative to the ultimate valuation. It does reflect that increased uncertainty created by the EPA recommendation, and as we've noted, that's linked to those operating challenges which will flow through ultimately to unit cost. It's not a single point estimate, so there isn't one single number used in that. We consider a range of scenarios, assumptions and risking, and you'll see that disclosed in the financial report released today. But obviously the accounting standards aren't looking at market multiples and so I think there is a recognition there that obviously the considerations look more to kind of raw NPV outcomes which are then naturally heavily influenced by those kind of unit cost input numbers. I think we obviously have disclosed our pruning assumptions with those increased haul distances from 29. So that was released with our strategy pack earlier this year. And Graeme this morning talked some of the impacts that will flow in the event we aren't able to resolve these challenges with the EPA.

Okay. All right. So in terms of what do I put in for greenhouse gas costs?

Yeah, we haven't provided any of those numbers. Obviously, there is just a range analysis in there and then we ultimately have to find a centre point on that.

Okay, thanks. And then just a couple of quick follow-ups. Firstly, would you be interested in the minority stake at Jemco if Anglo was selling that? And just finally, any colour on the Moselle power situation? Thanks.

Yeah, look, first and foremost, we know that operation well, Jemco. On the positives, you know, when it's back up and running, it sits really well in the cost position. It's still one of the highest quality operations and it's close to sea customer and makes a good margin. At the moment, we've obviously got the main mining area. We're opening up part of the eastern leases. We think there's an opportunity to add to that. both the southern leases and the northern part of the eastern leases, and ultimately there's some more resource on the island we'd be interested in acquiring. From our perspective, you know, we're in control of that asset today. So if you were going to buy Anglo Sheriff at Wasasa, you certainly would be interested in buying a control premium because we're the operator. Anglo have been a great partner today and continue to be a great partner as we go through the restart phase. of GEMCO, if they're willing to sell at the right price, we'd be interested. If the price is not what we consider value accreted to our shareholders, well, there's no compelling reason for us to actually do it. That same argument to me would extend across to our HMM business in South Africa. But to be clear, Anglo have been a good partner to date and we've had no indication they're interested in actually selling, but we'll watch that space. Second question around Moselle. Look, Moselle is an interesting one for us. You know, that contract that sort of expires March next year, One thing that is very clear, I've been to Moselle a couple of times over the last 12 months and spent time with the President but also senior ministers, and Noel and his team have been doing a lot more engagement on that side. They absolutely recognise the importance of Moselle. You know, we're roughly 4% of the GDP. The government of Mozambique owns 3.9%. The IDC owns 24%. You know, it's roughly 1,150 full-time employees and another 1,200 contractor jobs, indirect jobs that creates about 21,000. So almost one in three manufacturing jobs in Maputo are tied up with Moselle. If Moselle didn't exist, they would have a large abundance of energy which they wouldn't be able to utilise in the short to medium term in terms of not making any money on it. We are very conscious that they're about to go through an election at the moment. This involves a discussion with three parties, ourselves, ESCOM, and the Governor of Mozambique because the power line doesn't run directly from the hydro source to Moselle, it goes by the wielding infrastructure in South Africa. So we're making good progress on some of those discussions. We had the ESCOM CEO across at Moselle recently and he's been hugely supportive. The Governor of Mozambique is doing some of their own work around Moselle future industry in Mozambique that we're working with them on. So it feels like it's heading in the right direction. Sometimes things in that part of the world just go a little bit slower than we would actually like, but the indications we've received to date have been really positive and certainly supportive when I've been there.

Thanks very much.

Your next question comes from Rob Stein with Macquarie.

Hi, Graeme and team. Thanks for the opportunity. Just a question re-capital allocation. So you're going to get $10.50 from the initial proceeds of the coal sale, of which $200 is coming back via the buyback. How do we think about the resulting $8.50 in terms of allocation to growth projects, allocation to net debt targets? And how can we then think about further proceeds on the following payments? This provides a good insight into how you think about cash flow allocation.

Yeah, and I'll get Sandy to talk you through it. What I would say is the way we approach capital management overall, the balance sheet management, et cetera, remains unchanged. So it should be no surprise. What we've always said is we'll have a look at the appropriate debt levels based on where we are at the time. But if you think about the organisation in 10 years, you've had major changes to the portfolio. We started day one with no growth options. but also heavily intensive businesses in terms of South Africa Energy Coal, Illawarra, cash loss businesses such as Metaloys, Temco. They've all left the portfolio now, so I think it's a different composition. But I'll get Sandy, the CFO, to talk me through how we think about it. But what I would say, consistency and no change since day one about how we think about it.

So the capital management framework is unchanged and it does maintain our approach to an investment grade credit rating in a sustained low. But of course we have always believed in competition for capital and this is a commitment to that. Allocated $200 million, which is consistent with that approach of allocating excess capital and at this price we do consider the buyback the best value option for shareholder returns. It does bring our capital management program to $2.5 billion. We expect to see our target range for net debt being between that $0 and $500 million in this early stage of the Taylor Capital Program and naturally more conservative in this phase in the capital program. We'll continue to iterate this over time and in light of portfolio action as Graeme just spoke to. Our capital management program, of course, will continue to reward shareholders in accordance with performance.

So I'm reading between the lines there, you're being naturally conservative by the capital build, and at most you have to sort of keep a little bit in reserve for that. And then if you were able to execute that on budget or, yeah, God willing, under budget, then investors could expect to see some more money coming back.

That'd be under budget, yeah. I'd love it to be under budget, and that's right. So as we obviously continue through that program, we can obviously continue to assess where the balance sheet needs to be. But at this stage, you'll expect to see us fairly conservative but consistent with our framework.

But I'd say that approach, again, is consistent with how we've spoken about it. We'll run a... You know, we test our balance sheet in terms of that investment grade against a sustained low case. And for us as a business that can have low margins... it's important that obviously we keep control of the business when the tide goes out. So a combination of high financial leverage and commodity leverage, I think, could be a problem for us. We've always talked about when the money's in the bank. So I think what I would say is every single time we have a reporting period, it's a discussion we have with the board and we do the same kind of calculation. And, you know, we certainly appreciate that consistent strategy from day one, we think is an important part of our DNA.

So then just a follow-up to, I think, some good points you raised then on portfolio evolution. When oil came in, very highly leveraged business, loss-making businesses, focused on different parts of the mineral value chain. Now you're left with aluminium, which is sort of a midstream to downstream commodity, and then all your growths and then upstream commodities and LATAM. you know, other side of the world to the aluminium businesses. How do you think about, I guess, managing the business in a way where you can align growth to, I guess, where your head is at from an operational standpoint? Because they are very different businesses to run and operate.

Yeah, so look, it's a good challenge, actually, and obviously the portfolio has evolved a lot. And some of that stuff we talk about in the pack when we talk about the portfolio and even in discussion with our auditors, I think I've sort of got the feedback that they've probably never seen a company that's changed so much in 10 years with lots of little transactions. You know, we will, if you look at our underlying revenue, 90%, including the aluminium value chain, which will come from the base metals, If you look at Illustrative FI24 on slide seven, when we demerged, that was probably about 55% was coming from energy coal, met coal and a little bit of manganese. So that's quite a transformation from that side. Had no growth options. Now you're right, if you look about the next couple of years, We have the opportunity to increase our copper production by 15% in 2025, another 6% in 2026, and our low-carbon aluminium coming out of Brazil and coming out of Mozambique will increase 17% in 2025 and a further 8% in 2026. And that's before you actually think about what can happen with the fourth grinding line and before what can happen with Taylor coming online, particularly with taylor first but then if we can bring copper in on the peak side which we should have a good sense of that within 12 months time um what i would say is look over the last probably 24 months myself and a number of the team have spent a lot of time in the us on a regular basis and that's not only about project development community engagement it's also about time in washington as you understand things such as the ira act and how you get the approvals fast track which i think we've achieved Spent a fair bit of time obviously in Chile at Sierra Gorda. I was there about four weeks ago. and looking at the progress, but also understanding the size of the prize there, which I think is considerable. We've managed to do that over the last 18 to 24 months while we've actually set production records at HMM, regular production records, if you like, at Hillside, I think three out of the last five years, and returning back to nameplate capacity at Moselle while dealing with the power contracts. And part of that is, I think, you know, investors don't already see it. But, for example, Noel, who runs our African business, you know, I think he's done an amazing job over the last couple of years to manage those government issues, but also to keep the business humming along. So I have a high degree of confidence we can continue to perform well in Southern Africa while actually growing our business in the Americas at the same time.

Thank you. I'll let others have an opportunity.

Your next question comes from Paul McTaggart with Citigroup.

Good morning. So we've touched a little bit on Alley, but I wonder, you know, just have we made any progress in terms of how to kind of get a different source for energy for the hillside operation? I'm conscious that, you know, time's slipping away and we've got still some time to resolve that, but we've just never seen much in terms of progress. Can you update us, please, Glenn?

Yeah, look, absolutely happy to talk through that. Look, from my perspective, I'm actually, you know, what I would say is we did a whole lot of work over the last 12 to 18 months at Hillside to understand the options for of green and that's a combination of solar and wind. If you think about South Africa, Northern Cape, Western Cape, you have great access to both of those critical markets. So I think longer term and what we're seeing when we went out for some of these requests for proposals was the cost of producing green energy in South Africa has come down dramatically. I think the challenge for us is, as a smelter, we need that consistent, reliable power. So while we could have invested through third parties a lot of money to build out that renewable infrastructure, we would still need to rely on a large amount of standby power from Eston, which would be a combination of coal, which is what we've fully allocated today, but perhaps more of an allocation of the nuclear that doesn't get allocated to the smelter. I think ultimately the right solution for South Africa and where they're heading is a much more integrated grid where they can provide a one-stop-shop, where they bundle the nuclear, a shrinking component of coal, and a growing presence of the renewables. Time is on our side on that for Paul. So the current power contract runs to 2031. We've talked about halting our scope one and scope two emissions by 2035. So I'm much more comfortable around the time we have to get that right. Certainly much more comfortable with the government and national unity and how they're thinking about industry. And to be honest, the brutal reality that when it comes to ESCOM, we're one of the remaining largest paying customers. they don't have a whole lot of, if you like, other options in that space. Now, one of the challenges for load shedding over the last probably four or five years is most businesses have sort of set up their own independent power sources relying on renewable and wind, so less reliance on ESCOM, which means ESCOM has less paying customers. So I think the significance to ESCOM of Hillside has dramatically increased over that time. The appointment of a new minister under the Government of National Unity and the focus there has been really positive. You know, I absolutely think we're heading towards the right direction over time there.

Thanks, Glenn.

Your next question comes from Lachlan Shaw with UBS.

Morning, Graeme and Sandy. Thanks for your time. A couple from me. So just to follow on Hillside. So I'm just wondering, obviously the EU is moving down the pathway of carbon border adjustment mechanisms on imported goods with embedded carbon. Have you done any work on potential risk to realise pricing at Hillside, given the importance of the downstream automotive fabrication industry exporting to Europe from that plant?

Yeah, look, maybe taking a step back, it is a broader issue for the South Africa economy in general. You know, we do sell a portion of our product domestically downstream, which gets paid mainly into auto parts. It also feeds into Europe. So it impacts people like Heuleman, impacts many other people who actually sell there. What we are seeing, if you like, the first part of CBAM is really focused on scope one, not so much the other aspects of that yet. And we're comfortable in that space as well. that hillside still has a position to actually sell product into the market there i think as we see longer term there'll be greater clarity on scope too that's stuff that we'll have to think about but i think that's more in the timeline that we actually see rolling out with the energy transformation in south africa and potentially where c van is going now in saying that on the counter to that we have seen some of our customers in Europe already pushed towards a green product. But in saying that, you know, Hillside has a strong track record also with selling into the US, but also emerging markets into Asia. So unlike Moselle, which pretty sells most of its product, if you like, into Europe. Hillside's a bit more diversified on the book and has been for a period of time. So we think not only is C-band manageable, but we have multiple markets for Hillside that allow us to navigate that energy transition.

Right, thank you. That's helpful. Just on Cannington, a quick one here. Obviously, nearing end of life, complexity is increasing, as you've described, but FY26 guidance is up year on year. Just how should we think about the remaining life of mine plan and production in the next little while?

Thanks. So the way I think about it is, you know, Cannington is now in its probably 27th, 28th year. It was never designed to sort of go for that period of time. in terms of the infrastructure, which is why we've moved away from the actual shafts to actually trucking. Probably the bigger impact is the number of stoves we now handle is more, and the size of those stoves is actually smaller. To sort of put that in perspective, when you have a look at the stope count, the average in 18 to 23 was probably about 64 stoves. We'll be doing 100 stoves in 25, and that increases by another quantum in 26. That's all stuff that's built into plan. Part of the reason 25 guidance is actually down is we're actually building ROM stocks back up to create the buffer after we saw that cyclone go through in January, February this year. So we need to rebuild some of our stocks there. But what I would say is stope increasing, number of stopes, re-handle increasing is But probably the bigger thing is you're going to see from quarter to quarter real big movements in metal produced because the grades actually swing quite dramatically from stope to stope. And it just takes one of those stopes to move a week and it goes into another quarter. So while the annual number will hold, you will see quite large fluctuations. We've got about a five-year reserve for the underground still existing there. We are doing some more drilling around remnant ore to see if we can add to that. There's about a five-year open pit option in the resource, which economics are probably still borderline, if not questionable at the moment. So that's something we'll continue to monitor. But I guess what I would say, still be a high margin mine, but the variability in metal produced will be quite large compared to what you've seen in the past.

That's really helpful. Thanks, Graeme. And look, just one final one. Just on the Worsley impairment, just to be clear, is that the best estimate of the impact of the current conditional approval that you're now appealing, or is it a probability weighted estimate of where you think you might get to under that appeal? Thank you.

It reflects the existing conditions, although we have allowed for some optimisation of the mine plan, the proposed conditions.

That's great. Thanks, Sandy. I'll pass it on.

Your next question comes from Glynne Moorcock with Baron Joey.

Morning, Graeme. Look, I appreciate you're still in discussions with the insurers, but I think I heard you say that you've got some money coming in this quarter from the insurers. So is it fair to say that you've already resolved the construction side of the discussions and now you're actually going to get all the money back as you spend it, that $125 million?

Well, Sandy, insurance guru...

Yeah, sure. So it's a phased process, Glyn. So effectively, kind of as we incur the costs, we put them through in a phased process. And so obviously some of these capital costs are going to come through earlier and we're starting to see some of those costs flowing through and that's what we're submitting now. And of course, the business interruption insurance will naturally lag that as we kind of work through the operational outage period.

So probably fair to say, Glyn, the capital on hard things like road rebuilds, bridge rebuilds and berth is much clearer. I think the business interruption ultimately always becomes an agreement if we look back historically what we've experienced when we lost the drag line at Clipsprade in the early days.

Yeah, so I should get the 125 back in full and then maybe, let's call it 60% of your business interruption case, maybe that would have...

I think he can comfortably say we'll recover the capex and then, of course, the balance will be up for negotiation.

Okay. And then just the second one, just as an adjunct to Lachlan's question, on Worsley, I mean, if you have no success with the EPA and the WA Premier, I mean, you've still got a $2 billion book value. So I assume you still go ahead, like it's still got value. And as you said, you've pretty much accounted for the EPA ruling in your revision to book value.

Look, I think obviously you've got a business that has value and creates value for you, but I think you've got to think in the context that this is a long-life asset. This is 15 years. You've got multiple mining areas after that. I think it has broader implications for not only the mining industry but the broader industry in Western Australia. You know, I would be... inclined to think that, look, we need a resolution to these issues, rolling over them and accepting, I think, longer term beyond the 15-year period puts Worsley and the other businesses under severe pressure in that part of the world. You know, we would be looking to take a very hard stand if we don't see progress from the WA government on this.

All right. Thanks very much.

Your next question comes from Paul Young with Goldman Sachs.

Hi again, Graham. A couple of questions on a couple of the other assets and the first one being Homosa. There was a lot of questions on Homosa in February, not one on this call so far. But I'm just curious around how you think construction is going. Look on slide 31, it looks like it's going quite well. I know you're spending... $500 million this year of the $2.5 billion budget. But can you just talk through how you think construction is going and anything you can call out on where things are coming at so far versus plan and budget?

Yeah, look, I'd say what I'd describe it now, Paul, at the moment is everything is sort of going to plan. I mean, obviously, this is a project constructed over many years. You know, we've obviously done a lot of the surface work and the pre-collar work on the shafts, so that's largely completed. We're making good progress on the state permits to allow full construction of surface facilities. We're seeing really good progress under the FAST 41, which is the fast-track piece with the federal government, so they're hitting every single deadline. And a big one for us is, you know, we've done most of the dewatering wells. They're all being completed now. They're all connected up to water treatment plant number two. And, you know, we have multiple trains in there. We will not be having the capacity of water where we have to run all those trains. So I think that's been a positive side on the water piece. What we are seeing is when we're ordering some of the... particularly around the process plant and the energy side, some of those critical pieces of equipment, long lead items, we're not seeing any kind of inflationary pressure on those yet, but obviously there's more to be ordered. We're also, you know, the... vent shafts themselves and the main shaft will start cutting the rock with the Galloway probably towards the back end of this calendar year. That's probably the next critical piece as we start doing that work. On Clark, we've actually started the decline. What I can say is the first part of the ground conditions, if you like, in Clark on the decline have been better than we expected. That probably bodes pretty well for the shafts in the initial part because the That's the area where we're a little bit worried about more choppy ground and that shares a similar kind of ground conditions. The other piece is we had some good results on flux in terms of drilling. I think the one to me which we'll know a lot more about in the next 12 months is peak. We released a few more holes on that that continue to show our belief that we think that peak joins up to the bottom of Payless Deep. And Taylor's Deep has a lot of copper that we don't include at the moment. If we can prove that over the next 12 months, then you have the option to spend about $50 million extra on CapEx and add, you know, if you like, a third product that comes out of Taylor, so a zinc lead and a copper con. So to date, I think everything's going to planning to date, but I'm very conscious this is a multi-year project.

Yeah, thanks, Graeme. Excellent. And then on Brazilian aluminium, I see it registered or reported, I should say, negative $1.15 million of EBITDA. in the year, operating cost of $3,500 a tonne. It was running at 70% nameplate, so it's carrying all the fixed costs, of course, and the ramp-up hasn't been smooth by any count. I know aluminum prices are sitting at $500 a tonne or so, pitch and coker rolling over, but I guess the question I have is that where do you think unit costs can get to? I know you had a normalized aluminum price if you achieve the ramp-up, because I know you said second quartile, but this melt is losing cash.

Yes, it is losing cash and we've been obviously really disappointed with the pace of the execution of the restart. Bill from Alcoa will actually talk to you about it. He can sort of quote the comments we've given him. What I can say with Bill moving into that CEO role, there's certainly been a much more focus on technical excellence. and putting in place the right experience for people down there. So we are seeing some progress starting to be made on that side. What the biggest issue probably to date has been around crane availability, which continues to edge back to where it needs to actually be. We're probably still a little bit more conservative on the ramp up than they are, purely because we've been burnt a couple of times, but we'll watch how it pans the next six months. but we feel that they do definitely have the right people on the ground now and we are seeing progress. We still believe, if you think about cost performance, it should be somewhere around the same mark as roughly Moselle.

Okay, great. Okay, that's helpful. Thanks, Ryan.

There are no further questions at this time. I'll now hand back to Mr Kerr for closing remarks.

Yeah, look, thanks, everyone. Look, I appreciate the time today, which obviously is a busy reporting day. Look, I would just sort of remind people of the high-level takeaways. As a business, we've probably never been in better shape in terms of balance sheets, you know, focused on the assets that we have, those commodities that are critical for decarbonisation of the future. You know, we also have strong near-term production of growth in copper, 15% up in 25% and 6% in 26%. Low carbon aluminium is 17% in 2025 and 18% in 2026. Taylor, as I mentioned as Paul's question, is progressing to plan and we're seeing some of the major risks around water fall away but also the resource continue to grow. I do believe absolutely that Illawarra has been a very good deal for us in terms of reducing complexity, lowering our sustaining capital intensity, strengthening our balance sheet It's in simple metrics. It was 13% of our employees, 26% of our scope three, 35% of our sustaining capex over 26 to 24. So it's been a game changer for us and it really puts us in a strong position to fund our growth options outside of the short term. So that's Somosa, Cerro Gorda, Fourth Grinding Line and some of our early stage development options. So from my perspective, you know, the organisation has a really bright future. It's well positioned. And I just wanted to thank everyone for their time and support today. And again, the restart of our buyback, that allocation of $200 million just reinforces our confidence in the business and where we think we can add value. But thank you, everyone.

That does conclude our conference for today. Thank you for participating. You may now disconnect.