South32 Limited

Good morning, everyone, and thanks for joining us today. On the call with me is our Chief Financial Officer, Sandy Silvano, and Chief Operating Officers, Vanessa Torres and Noah Paley. I'll give a short summary of our financial results and outlook for the first half of FY25 before taking questions. Firstly, I'd like to talk about safety. In September, we tragically lost our colleague, Jose Luis Perez, who was fatally injured in an incident at Cerro Matosa. An investigation into the incident was completed during December. Key learnings have been shared across our organisation and improvement actions are underway to prevent a similar incident happening again. We continue to implement our global safety improvement program and we're determined to achieve a step change in our safety performance. This includes a significant investment in safety leadership through our Lead Safely Every Day program. While we have more work to do, this program has supported measurable improvement in our safety performance. We've had a strong start to the year off the back of our improved operating performance. To call out some of the highlights from the half, we increased aluminium production by 5%, copper equivalent production increased by 21% at Cerro Gorda, and we maintained production guidance across our operations, except for Moselle aluminium, where we have updated guidance as we continue to mitigate the impacts of civil unrest in Mozambique. As announced yesterday, we have now received primary state and federal environmental approvals to the Worsley Mine Development Project. The project will enable access to new bauxite mining areas that are expected to sustain production to at least FY36. At GEMCO, we have commenced a phased restart of mining activities and export sales are expected to progressively increase over the June 2025 quarter, subject to further potential impacts from the wet season. Across the group, we remain focused on driving cost performance, with lower operating unit costs than the majority of our guided operations expected in the second half of FY25. In terms of financial performance, we delivered a 44% increase in underlying EBITDA $1 billion and an increase in underlying earnings to $375 million. Cash flow from operations improved by $361 million, despite a build in working capital due to higher commodity prices and the timing of shipments. And we reduced net debt by $715 million to $47 million, consistent with our focus on prioritising a strong balance sheet through the cycle. As a result of our strong financial position, today we announced a fully frank interim ordinary dividend of $154 million at 3.4 US cents per share and the continuation of our capital management program with $171 million remaining to be returned to shareholders. Turning to our portfolio, the sale of Illawarra Metallurgical Coal in August 2024 for up to US $1.65 billion unlocked significant value and streamlined our portfolio. Building on our previous portfolio improvements, that's also simplified our business, lowered sustaining capital intensity, and strengthened our balance sheet. We are investing to grow our future production of critical minerals as we construct our large-scale long-life Taylor zinc-led silver project at Hermosa in Arizona, progress the exploration decline of the Clark battery-grade manganese deposit, and continue exploration programs as we unlock value across the MOSA's highly prospective regional land package, with recent drilling at the peak deposit returning further high-grade copper results. In closing, our operations are performing well, our balance sheet is strong, and an unwind of working capital is expected to add cash generation in H2FI25. We have an established growth pipeline that can underpin significant growth in zinc and copper. And our unchanged capital management framework is designed to reward shareholders as our financial performance improves. Thank you. I'll now hand back to the operator.

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. And if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Paul Young from Goldman Sachs. Please go ahead.

Good morning, Graeme. It's Andy. Hope you're well. Great to have a positive update on most of the assets. And, Graeme, good to see the unit costs are falling in the second half. Just on unit costs and maybe just focusing in on Worsley, first of all, I know this is short-term, but just the second-half cost guidance, it does seem conservative considering that that FX is falling and production theory should actually increase in the second half. So just some commentary around why unit costs will be flat half and half and obviously I know that cost of consumption and prices are a little bit elevated. And then on the medium term cost guidance, so thanks for providing that. What I have seen is that I haven't seen an update on FY26 Production Guide is considering heading into that higher-grade area, so you can maybe just comment on production in FY26. Thanks.

Yeah. Look, first and foremost, Paul, with the approval both for federal and state now, we are actively starting the development of new areas, which I think is an important milestone, and as you're aware, it's been a long process for the team, but I think they've got a really great outcome. Look, when we think about our FY25 guidance, Our unit costs are still hovering around that $305 a tonne for this year, and that's predominantly due to higher bauxite consumption in the current mining areas. We will be opening those new areas, but we don't see the full production in terms of returning back to nameplate capacity to about FY27. As a consequence, as we sort of think about that unit guidance we're giving for FY25, We have increased that following the federal approvals by roughly $5 a tonne. So that means the range we're giving for FY25 to FY28 is around the US $2.75 to $2.95 a tonne. And again, as we get into FY27 and get full production, we'd expect to actually see, if you like, that unit costs come down as production grows. The $5 increase in tonnage is really additional administration costs that come with some of the conditions around monitoring, et cetera, that are in place. Do they stand if you want to add anything to that?

I think that's right, Graeme. The cost of consumption is really driven by the quality of the balk site that we are working through at the moment in the current mining area. Obviously, as we kind of bring that through and get to stockpile that, we'll see that benefit in the first half of the next financial year.

Yeah, I got that. Yeah, it does. Swings and roundabouts, and it sounds back and wide at that falling unit cost. So, yeah, thanks. And then, Graham, maybe just talking on manganese, in particular, I should say, on Australia, can you provide any colour around, you know, spend, outstanding spend on the wharf, any commentary on insurance proceeds, just trying to match up what the cash inflow slash outflow or net outflow or inflow is for that asset. And then also... Back on to the question mark around manganese, is it core? And we know Anglo's made public about their, I guess, view on divesting that asset. So I'm just curious around, it's obviously a hard asset to sell when it's shut down, but your view on actually packaging up the asset on a 100% basis and actually getting involved with Anglo and actually maybe driving that sale process and maybe any commentary you can provide there. Thanks.

Look, maybe let's start with the strategic question. Manganese is a commodity we actually like as we think about long-term peak steel. You know, manganese in the process of recycling steel, unlike methol and iron ore, will continue to be added back in. We still think, you know, Gemco, for a variety of reasons around quality, but also moisture levels, is the most, if you like, attractive commodity. manganese out there in the marketplace. And GEMCO, because of lower cost proximity of the mine to the processing, processing to the port and the port to the customer, is always going to be well positioned on that cost curve. And I think the work we're doing now in South Africa to unlock, and we've spent some of that money around additional capital loop and rail capacity to sort of take more product off the road long-term and get on the rail sets up that business for success. And it's particularly finished on Northern Block Investors. I was actually there last week looking at progress. I think it means that we like that commodity. We particularly like, you know, Gemco and where it sits in the cost curve. But in saying that, you know, everything's to sell at the right price is the way I think about it. We like our position today. You know, we are the operator. Anglo's been a very good partner for a period of time. and continue to be a good partner, but we operate it, we market 100% of the product, don't necessarily see why we'd want to buy our Anglo share unless it was at a discount. And from our perspective, if someone else came around and offered us more money than we thought it was worth, we'd consider it like we would for every other asset in the portfolio. But we do believe manganese is on strategy for us, an attractive commodity. Look, in terms of what's going on with Jemco, I'll start with a big call out to the team The volume of water and the damage done there by Cyclone Megan, as someone who's lived in the northern part of WA and Queensland, never seen anything like what was seen at Jemco. If we think about where we are today, some of the key milestones we have achieved, we have resumed production from the primary concentrator. We have completed construction of the haulage road bridges that were absolutely smashed by the cyclone. We've already removed all the undersea structures that existed from the old damage berth. And to me, that was one of the more challenging components of the rebuild. We continue to dewater the mining pits in preparation for resuming full production. We have installed the pile into new wharf infrastructure. To put that in perspective, we've got 16 out of the 28 pilings completed as of the 12th of February. We expect to have the first dolphin completed by next week, second dolphin the week after. I think the single biggest risk we still see is weather. As you're aware, Paul, you know, the wet season at Genco runs to, you know, probably late April. And, you know, we've had years where we've had relatively benign and then we've had years where it's been relatively heavy. It just depends on where we land on that space because particularly on the wharf, you know, we won't be doing work in conditions that challenge ourselves and the contractor in terms of swell, wind and rain. Look, the way I think about it now, you know, we expect sales to progressively increase over the fourth quarter of FY25, and we have provided guidance around that that we now expect to probably produce about 1 million tonnes coming out of FY25 or coming in that last quarter and sell, and we'd expect to get back to about 3.2 million tonnes in FY26. At the moment, we don't see anything that's going to stop us getting to that position. I think the critical piece for us, again, will be to watch the weather. Now, we've got an additional barge up there now in case weather sort of turned a certain direction. But I think at the moment, you know, the teams are working well. Some really good progress made on the island. The most challenging piece from a safety perspective to me was the removal of the damaged underwater infrastructure, which has all been done and done safely. Now it's just about continuing the piling and watching the weather. Sandy, if you want to add something on the capital spend and maybe just the insurance so people are clear about that as well.

Sure. So from a capital spend perspective, our guidance is unchanged. We track and plan, as Graeme's touched on. And so we will update if anything changes on that. But at this point, in line with guidance. In terms of the insurance program, as we've touched on there as well, we have had confirmation of it as being an insured event. We've recovered now $250 million US at the 100% level under the existing policies. So therefore, business interruption insurance and for the capital impact. We are continuing to work with our insurers. We've put a phased approach there, so we're kind of submitting costs as they're incurred. And we do expect to see that progressing through this half with ultimately a settlement, hopefully, in the calendar year.

Paul, does that help?

It sure does. Thanks very much. Appreciate it.

Thank you. Your next question comes from Raul Anand from Morgan Stanley. Please go ahead.

Hi, Graeme. Sandy, thanks for the call. Look, I've got a couple. First one's on Hermosa. That's an easier one, I guess. And then perhaps a second one on Worsley. So first one on Hermosa, I mean, obviously, given the change in government and perhaps early indications of perhaps, you know, they're being a bit more constructive in terms of domestic mining. Have you had any conversations around that land swap that you need, I guess, in a period of six years or so after production starts? Any update there would be appreciated, and then I'll come back with a second on Worsley, then.

So, Raoul, maybe just to clarify, we actually don't need a land swap. What it actually is is probably for the first roughly six to eight years of production, we can actually do all the construction and the operating, including the first stage of tailings on state land, where we actually have all the approvals. What we need a federal approval for is roughly about six to eight years. And I say six to eight years because it depends on the production rate we're going at and the tailings stack. And I think there's more upside than downside on that. You know, we're currently going through what's called the Fast 41 process. And we are the only mining project in the US that's in that Fast 41 process. And we got put into that process under a democratic administration. Whereas generally, as you're aware, Republicans are more pro-development. That FAST41 process for us is important because it gives clarity for the longer-term investment quickly. To date, that's been tracking well. One of the advantages of the FAST41 is you do exactly the same amount of work, but there's a lot more focus from the federal various agencies on timelines, resource commitments, etc., From our perspective, look, that is running really, really well. They're ahead of every deadline they've put in there. You know, from our perspective, we probably, you know, we want that past 41 so we can also do a power connection across some federal land. It's like an easement. We don't necessarily need that from day one, but it's a nice to have. But I think it'll just give us a lot more clarity, if you like, on having that full approval probably way before. And we've always said that we would expect that, you know, that federal approval under FAST 41 we would get within four issues. And we're certainly on track at the moment to exceed that. So, you know, that kind of engagement we've had so far. Haven't had a lot with, you know, we've had Pat and Judy, who's our external affairs person in Washington last week, obviously talking about the credentials of the project. But we've still got the funding in place from the DOD and the DOE for Clark. We've still got a lot of support around FAST 41. We expect the draft EIS for FAST 41 to come out in May 25. From our perspective, you know, we continue to progress the on-ground work at Hermosa. You know, the main... We've started sinking the bench shaft already. The main shaft we're about to start in this... second half of the year, and we also expect to start the construction of the processing plan after doing a fair bit of the foundational work. Does that help clarify? So we don't need any land swap. We can actually get construction operations actually done before we need the federal approval, but we're in the great position where we're using the FAST 41 to actually close out the federal approval relatively quickly.

Yeah, no, that's clear because I was just trying to get an update sort of how that process is proceeding, I guess, and you talked about that a bit. And I guess we'll get a bit more news flow as time passes as well when you get a bit more information. Look, maybe I'll circle back to Worsley then. You did answer Paul's question around that extra $5 a tonne and what that's attributable to. But I wanted to perhaps touch upon your forecast of basically getting back to nameplate in FY27. Obviously, a part of that nameplate return is related to the refinery performance as well. That's been somewhat variable. Do you think once you've sorted out the mine plan side of things, are there any rectification works going on on the refinery or any changes that give us a more stable nameplate run rate at about 4.6? Beyond FY36, obviously, you're going to have a significant chunk of measured and indicated resource left as well at the end of that 36 period. So with this recent approval that you've had, does that open the door for a bit of conversion from that into reserve as well, or is that going to have to be another mine plan approval as you progress through? I understand it's still about a decade away, but... it would be sort of useful to get an understanding of what this approval sort of encapsulates within it.

Thank you. Yeah, absolutely, Raoul. Good question. I think the simple one first, the additional $5 a tonne is really a result of the additional conditions that have come out of the approvals, both at the state and the federal level. And the way I think about that additional cost, it really is around administration, additional surveys and monitoring that we need to do. recognising, you know, Worsley's in a unique part of the world. So that's what the $5 a tonne represents. If we talk about refining capacity, the refining capacity of Worsley is about 4.6 million tonnes in 100% terms. The capacity of the refinery, if you recall, you know, in the BHP, there was a project called the Expansion Project, you know, many years before the demerger from BHP. They never actually hit that nameplate capacity, but we did that consistently over the last three, four years until we actually had the bauxite challenge around availability. So I think the biggest issue we're seeing really is on the bauxite fee piece. There were some challenges in 24 around the overlay conveyor, which has actually been fixed, and that's just an ageing and a maintenance catch-up around the age. But the refinery has not been the constraint for a number of years. What we do get under the current approval is that, you know, it allows us to basically get access to two areas to be very clear around the approval. One is it gives us additional clearing allowance, which enables us to access some of the existing mining areas around Saddleback, Maradong and Kwandani. And that's until we get to the first store, Nalaga, Nalaga, Nalaga? Sorry, pronunciation. And that's probably the key bottleneck in the short term around capacity. You know, we'll get access to those additional mining, these existing mining areas, but it's not where you're getting to the newer, higher-grade material. We will get to that in terms of refining that in FY27, which is when you get back to mainplate capacity. Now, clearly, the challenge for the team on that side will be, can we go faster or quicker on that? I think the answer, we've got a very consistent plan which the team will be delivering on. Obviously, getting access to the new mining areas is important to us. That does extend the life of where we'll actually be for a period of time. It will result in conversion from resource to reserve to actually support that. It basically gives us access to a zone for a period of time, but we will have to, after that, go back and get additional approvals for the new area. What I would say is the change this year, there's a lot of lessons that will come out of this, I think, for everyone who operates in the southwest in terms of the government's obviously gone back. The state government's reformed their own EPA process, and that's a public document, so we can talk about that. I think the alignment around some of the critical issues over the last four years has been greenhouse gas emissions, and the government's been very clear on that position. And it's also the first time that the new approval process has sort of been utilised. So I think as we think about those next lot of approvals, I would not expect those to be as challenging as what they are today or what we've experienced over the last five or six years. So I think it's a much more positive outlook for Worsley. As you said, there's a large resource there that we need to work through, but it's a large, long-life, high-quality resource. you know, asset when you think about the grades that it has longer term in terms of not only bauxite rates, but also the reactive silica, et cetera. I don't know, Sandy, or maybe Vanessa, anything you would add to that?

No, not much. I think the current focus of the team right now is to accelerate the implementation of the access to Milligan, and that really is the focus right now. And the team is doing very good work on, you know, keeping the production we have today with the quality of oil we have today. So it's all positive, I think, going forward.

And just to be clear, Al, basically the new approvals we have take you out to FY36. So that certainly gives you plenty of time to work on your next bank of approvals at the same time.

Yeah, no, absolutely. And given what's happened with a lot of your peers as well, perhaps, you know, you've got that one lay and now perhaps, you know, it's better to get started earlier, I guess. But that's all for me. Thank you very much.

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

Good morning, Graeme and Sandy. Hope you're well. My first question relates to the aluminium market, please. Prices have been quite range-bound for the last four or five months at around about $2,600 a tonne. But you're calling out the decline in ventures for aluminium. China's capacity cap being reached 45 million tonnes. And then more recently, we've got the 25 cent tariffs from the US. So I'm just wondering if you could please comment on your outlook for aluminium prices from here. Thank you.

Yeah, look, absolutely. I mean, I guess I would start with, if you think about that medium to long term fundamental shift, we do believe that 45 million tonne capacity is absolutely what the Chinese policy is adhering to. And it really is about self-sufficiency. Yes, we are seeing a little bit of rejigging about the locations of where refining is done and where smelters are. I think the smelting in China continues to be the main game with some of the refining and bauxite perhaps happening in places like Guinea and Indonesia, but that's what's always underpinned our meeting to long-term price assumption, and that remains unchanged. In the short term, obviously, the cost curve of Aluminium has been hit by power movement or fluctuation, particularly in Europe, but also the cost of aluminum has been high, which has put a lot of smelters under pressure. The tariffs obviously are dominating the short-term, you know, picture of how people see the market. The reality is I think it's roughly 4 million tonnes goes from Canada into the US. So A, you can see that the US primary aluminium and alloy is imported from Canada. It's probably hard to see that that product will move to Europe or it's hard to see that that product will be displaced into the US. Our feeling is that 25%, if you like, tariff duty will basically fall ultimately on the end user in the US. We would probably expect to see the regional premium reflect that higher value in the US. That's probably the biggest change that we see. Clearly, we sell a little bit of our product from Hillside into the US. We also obviously have Moselle and Hillside, a fair bit of the product, going into Europe. But at the moment, the challenge I get with all the tariffs is how long does it last for? How much is it negotiating? And I don't think anyone knows that. A good anecdotal piece of evidence, I think every single premier from the relevant provinces in Canada was actually in Washington last week. So to me, it's a negotiation rather than a long-term policy. So we'll continue to watch it. Won't probably shift too much of how we think about the medium to long-term. And the reality is, from our perspective, it probably won't impact our product placement too much.

That's great. Thanks, Graeme. Second question, if I may, just relates to Amber Metals in Alaska and the high-grade Boronite copper deposit. I know it's long dated, but I'm just wondering if your confidence in the asset potentially being developed has increased since the re-election of President Trump in November, and just how you see the path forward for this asset. Thank you.

Yeah, look, I think we won't, you know, we haven't probably shifted our long-term position. We're probably, when we first acquired the interest, you know, the Trump administration was very proactive about developing Alaska then. Obviously, that materially shifted under the Biden administration. And obviously, Trump, if you look at the conservative 2025 documentation pre the election, talked about one of the first actions opening up Alaska, and they specifically called out the Ambler district. And again, that's been quoted in some of the recent press since he's actually moved back into that presidential role. I think as we think about that project, to your point, it is a long-dated option. You know, there's two areas of interest. There's Boronite, there's Arctic. Arctic's a VMS-style deposit. You know, generally they occur in clusters. We have done a fair bit of work around what potential we see in that region, and we think there are more opportunities via VMS-style deposits. The other thing to note is outside of Arctic and Boronite and the exploration potential around Amblin Metals, where we have a 50% joint venture with Trilogy, is we have 100% ownership of the Roosevelt Project, which is roughly about halfway down towards the Dalton Highway, and is essentially... The key to unlocking that district will be the building of a road. It's about 340 kilometres, which connects the Amblin Metals District, or the Amblin District, with basically the Dalton Highway for major infrastructure. To me, that's a critical piece. Very clear that, you know, the Trump administration and the Alaskans and I'd expect you'll continue to see the push. I think the challenge for us is probably twofold, is we've got more exploration work to be done to understand the potential, because we think there is a lot there. It's more about you also have a limited season you can get on the ground because of the weather, so you're going to make the most of that. But I think more critical for us is there are a number of First Nations groups and villages along that highway, Probably fair to say under the first administration, they weren't necessarily proactive about opening up that road for various reasons, and not all related to the mining piece, more that they don't want a public road going through there, and there's been a history of converting private and public roads in Alaska. There's been a lot of work done by the team over the last three or four years to work with the relative groups there, and we're pretty close to getting strong support there. I guess we'll watch with interest what happens from a government perspective. But to me, the critical piece is to sort of win the hearts and souls of the mine and the people along that road and sort of share some of the benefits of unlocking the district with them. And to keep that in mind, one of the major groups there is obviously the NANA group, who works very closely with tech at Red Dog, and they also have a stake in the Amblin Metals project. So I think about it as a good medium to long-term prospect, but that's the way we think about it with exploration and consultation with the First Nations groups, the most two critical pieces on our mind, with the road and the administration being the third one.

Thanks, Graeme. Appreciate it. Thank you.

Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.

Morning, all. Just with regards to Ceramitoso, I know it's subject to potential divestment in FY26, is sort of the commentary you've used today. Just can you refresh us on the process and timing that's going on around that asset and how we should be thinking about it going forward?

Yeah, look, I think a really good question and a subject that obviously a number of our people work there. And one thing I love about Ceramitoso, you go there and we have such high-quality people who are very focused on delivery. And they've done a really good job, actually, since we demerged, around finding ways to create value for our shareholders, and they continue to actually do that. I think the challenge for us, obviously, is what's happened in Indonesia around nickel has flown on to the ferro-nickel market and the absolute nickel price. So it does put an asset under more and more pressure. It's great to see that the team have obviously managed to, this year, continue to be cash flow positive and now actually add cash to the group. despite some of those challenging external issues. I think the key for me is what's the long-term future of that business in the South32 portfolio. It does have natural grade decline that has been coming for a period of time, but there are a number of options that would allow someone to realise more value out of that business. For example, there is an option we've been testing where someone could import some There's also the option to ultimately convert a slot, a different product like an MHP, that would be very useful to the US in terms of they think about some of their independence from China around key battery technology. But there are a number of options around alternate power sources because we predominantly rely on, you know, green renewable sources at the moment that are actually quite expensive in Colombia, whereas there are some, you know, more cost-efficient, if you want to be quite... pointed on around gas and coal that we wouldn't actually pursue. So it's one of those ones where I think potentially there's more value in someone else's hands than there is in ours. So we are exploring that actively now. We would expect to be in position by the end of the full year to sort of give people an update on that. But there are a number of interested parties, which has been a real positive. And as you'd expect, we're going through that normal kind of process now. My full year results should have some clarity. with an eye on, you know, obviously managing our people there because, like I said, it's a great workforce. But also, Sarah does some great job in the community here, and a lot of regional people depend on that business as well.

Thanks, Graeme. Can you just remind us what value you carry that at within your book?

So, Sandy, you can give an update on the current book value.

Yeah, so we impaired that in the preceding period, so it's got a fairly modest book value there. I think it's just under $50 million now.

Great. Perfect. Thank you. I'll pass it on.

Thank you. Your next question comes from Lyndon Fagan from JP Morgan. Please go ahead.

Good morning. Thanks for the call today. First one is just on Brazil aluminium. We're still seeing an EBITDA loss there. Just a bit of colour on the ramp up and are we seeing full freight of OPEX there but just not diluting it with or are we going to see sort of even higher growth costs once production ramps up? I'm just trying to get a better feel for the cost base there. Thanks.

So the way I think about it, it is a volume game there. You know, where we are today, you know, the H1 production is up by about 28% to 64,000 tonnes as the ramp-up continues. We now have 89% of pots online. And our estimate that we, or guidance we gave for FY25 remains unchanged at $130,000. What we do expect to see is you will see the operating unit costs come down as the smelter continues to actually ramp up. The previous guidance we've given there remains unchanged. What we have seen, you know, it has not been, you know, our coal is the operator there, and I'm sure you would have heard Bill talk about their focus on improved performance. We are seeing that on the ground. We haven't seen a change in the ramp-up plan for a period of time in terms of their hitting milestone after milestone where previously they weren't. It does have the advantages of being a 100% renewable power source from a combination of hydro, solar and wind. And that's two times 10-year contracts that are predominantly US dollar-based. So I think that's a polym around power contracts going forward. It takes away the... used to see when we originally had that smelter up and running, but it's purely a volume game is the way I think about it. If you think about long-term cost base, where should it position itself, it's probably very similar to what you've seen in Moselle historically, very similar kind of cost structure, and that's where it'll be when they're at full production.

Thanks, Graeme. Another one from me is just some quick financials. Why aren't we seeing an impairment reversal at Walsley? Just putting that out there to discuss. The other one is basically the share buyback deployment of only 29 million. You know, still got 170 mil left. I mean, it's a pretty slow run rate. What's holding that back?

Thanks. Well, maybe I'll answer the buyback one and then, you know, Sandy can talk about the impairments because that's a lot of accounting policy. Look, from my perspective, When we think about... Sorry, one second. On the buyback, if you think about that first half of the year, you know, we've had a lot of periods where we've either been talking to the state or federal government, so there's been large pieces of blackout periods where there's been discussions ongoing around what's happening there. Likewise, with the Moselle civil unrest, as we've sort of been working through that, we've had... we would have had probably in the past.

And just speaking to the Wesley impairment question there. So under our accounting policy approach, impairment reversal trigger testing is done based on a sustained low commodity price. And on that basis, we don't have a trigger for an impairment reversal. And that's a consistent policy we've had for many periods.

Thanks.

Thank you. Your next question comes from Con Pecker from RBC. Please go ahead.

Hi, Graham and Sandy. One on the balance sheet and maybe extension of Lyndon's buyback question, but, I mean, prior... ..the priority was maintaining investment grade and keeping that net debt range of 0.5 to 1 billion. Is the plan to keep the balance sheet conservative over the next few years as investment in Hermosa ramps up?

Look, I can't stand you to answer specifics. What I would say is we have always sort of looked at our balance sheet in the context of the operating assets we own and also what our forward profile looks like, and we've given a range. You know, clearly the sale of a little borough sort of has an impact around sustaining capital levels, but we are spending more capital than we have in the past on growth, clearly around the first phase of the MOSA. But maybe, Sandy, you can talk about our position and how it's unchanged, really.

Yeah, no, that's right. So the capital management framework is unchanged. We are looking to maintain our investment-grade credit rating in a sustained low, and we do believe in that kind of principle of competition for capital. We have the remaining buyback of $171 million, and that is consistent with our approach of allocating excess capital. At this price point, we do consider the buyback our best value option for shareholder returns. You touched also on our net debt target range there. We've actually updated that. It's about $0 to $500 million in the early stage of the tailored capital program. Naturally more conservative at this stage in the program, as you touched on there. We will continue to iterate that range over time, and that's really consistent, as we have done in the past as well.

Sure. And on the buyback, as far as I understand, if that isn't complete, does that top up the four-year dividend?

So we consider that at the time. So in the past, we've looked at it both as either a roll forward in an extension or we've considered it as a special at the period end. That's something we consider under the capital management framework at the time.

Sure, thanks. And the second one on Worsley, can you remind us of the legacy Illumina contracts to Hillside and Moselle? Obviously, it's to supply the equity share of feed, but do they reset and what's the linkage to LME? Thanks.

Look, the way I think about the sales, they are different Hillside and Moselle. Hillside is purely at the index. Moselle has a number of legacy contracts that are sort of driven as a percentage of LME. So you'll see their cost profile will be a little bit different from Hillside. A little bit of difference in the power cost, but probably the biggest driver will be in the how the actual Moselle contracts work. Ben can give you some more detail offline later, but essentially it's a, you know, there's a complaint which is percentage of LME and it's just had some colours and cuffs and timing around it.

Is there a reset? Or is just life of mine?

There is a reset opportunity that presents itself. That reset opportunity is about, I think, 2025. Yes. Let's double check in.

Sure, thank you, that's fine.

Thank you. Your next question comes from Paul from Citigroup. Please go ahead.

Good morning. So two questions. Firstly, with copper, it sounded like you were saying that you'd expect the US ALI price to reflect the premium or the Midwest premium to reflect the tariffs. Do you see the same playing out in copper, in Comix copper? Is that your kind of base case view? And the second question is really how much of that working capital increase in the half, the 270 odd million, how much of an unwind should we expect or should we think about for the second half?

Yes, I'll get Sam. You can take care of the working capital question. Keep in mind the last complaint that was in the aluminium value chain, but she'll talk to that. Well, the copper one's an interesting one because, you know, I don't think there's absolute clarity yet on what copper looks like. There is a lot of lobbying in the US around copper, around it being a strategic commodity, which is something the prior administration hadn't really engaged on. And that might have implications potentially on new project developments, but also existing operations there. And also there is some policy under Trump that's talking about investing in US companies to explore and develop copper overseas in places like the DRC. You know, one of the talks around tariffs is it could be around 10%, but there'll be exempt countries, exempt industries. I think only one person knows what that's going to be for at the moment, and that person... You'll probably read it on, you know, some form of social media before you hear it from the U.S. government. So we'll watch that interest and see what it looks like. You know, our product, you know, Sarah Gorda for us is marketed by KJHM. You know, we get market price on that. I'd have to go back and look at the breakdown of which market it hits, but from memory, it's predominantly, it's not into that U.S. market, but I can clarify for you that I've been coming back to you. Maybe on working capital, Sandy?

Sure. So the working capital did increase over the period, as you know, to $267 million. Largely related to building finished goods and raw material inventory in the alley value chain. We do expect to see that unwinding through this half. We also finished the period with elevated receivables and, of course, they'll be receded in the half.

Should I think of all of it being unwound or, you know, half of it? Sandy? Sandy?

Look, I mean, obviously, it depends a little bit on what happens with the input costs as well. So, obviously, some of these things depend on a number of factors. So, we have seen elevation in the input costs going in close. So, if they kind of normalise over the period, then I think you can expect to see the inventory being held coming down in value. So, that's a factor. And, of course, the rest has just got to balance on timing of shipments and then receipt of cash. So, we would anticipate it normalising during the period. We don't put out a percentage, of course.

OK, thank you.

Thank you. The next question comes from Rob Stein from Macquarie. Please go ahead.

Thank you for the opportunity. Just the Ceramitosa capital allocation on any asset sale, how should we think about returns if and when you do sell that?

Sorry, maybe Ceramitosa?

Sorry, just on capital allocation around the returns from the sale proceeds, how should we think about that? Is that coming 100% back to shareholders?

Yeah, look, I think the way I think about any sale we have of an asset, like we did with Illawarra, we'll go back into the centre, we'll go back into the normal capital management framework, and if we have excess cash in line with our prior guidelines around balance sheet strength and the net debt number we're looking for, then we'll apply the same capital management framework we had in the past. Keeping in mind in the second half of this year, cost guidance is down for the bulk of our operated assets. We've also got an unwind of working capital. We've also deferred some of the prepayments or early payments around Hermosa. So we expect to be generating strong cash flow in the second half of this year.

Thank you. And then just on following the coal transaction, you had talked to... corporate overhead simplification. Can you just give us an indication of how that's tracking, noting that there's probably a little bit of extra cost associated with Worsley and the process there, but can you just give us a feel for how the business is simpler following the investment?

Yeah, look, the portfolio for South32 has changed over many years. You know, if you think about our original competition, we had roughly 50% exposure to the bulk of which the majority of that was met coal and thermal coal. We don't own those two commodities at the moment. Along the way, we've adjusted our portfolio and our support structures to actually match that. The sale of Illawarra for us was opportunistic. It's not like we didn't like met coal. We just saw a good price and a good opportunity to sort of increase our exposure to what we think are the more attractive commodities long-term, i.e. copper and zinc. As you would expect, and I think we've spoken about publicly in the past, that sale has yet to be completed in terms of we've transferred it across, but we're providing transitionary services around some of the functions or some of the functional support to the new owner as they set themselves up. When that's completed, we are expected to be in a position where we will obviously be better off from a cost perspective. compared to when we owned Illawarra. Keeping in mind, we also continue to look at our functional support about where it's located as more and more of the business grows in the Americas. But we will certainly be net-net no worse off and net-net would expect to be a little bit better off.

Okay, thank you.

Thank you. Your next question comes from Glenn Lawcock from Barron Joey. Please go ahead.

Graham, Sandy, good morning. Firstly, just one for Sandy. Sandy, you talk about the working capital unwind, and I know it always builds and unwinds, but we're six weeks into the half. Are you actually seeing it, or is it still an expectation? I'm just trying to make sure it's actually happening and not going to be an expectation. Thanks.

Yeah, thanks for the question. We have actually started to realise that benefit through January and into February.

Okay, so before you pay the dividend and start the buyback up again, then we're back at net cash now?

We expect to be in a strong position to enter into those settlements, Glenn.

No worries. And, Graeme, just one for you on the strategy of the business now. I mean, Illawarra sold, future-facing. I know you were hoping to recycle the capital from Illawarra into Sierra Gordo, but your partner does want to sell now. You probably didn't get the cash flow you expected out of operating cash, given commodity prices haven't done what we all thought. With the balance sheet where it is, it is conservative, but do you still feel the portfolio is right or you do need something extra in the portfolio, you know, more future facing?

Look, I'd say, look, the portfolio has always evolved and will continue to evolve, Glenn. We would like more exposure today from an operating perspective in zinc and copper. You know, probably like everyone else, we've been looking at those opportunities. We've looked at participating in some of the processes and we haven't necessarily seen value for ourselves in that space, even though we've participated in some of those processes. So I think discipline and allocation of our capital management framework makes sense. Size to size doesn't make sense. It's got to be any kind of growth we do is over value. Logically, Sarah Gorda for us, we like the asset, we love the upside. around the fourth grinding line, but also the resource potential growth that we see towards the north of the current existing operation is exciting. And obviously, we've got growth potential at peak around copper as well. Look, KJHM has been a really good partner. We have no problems with that. We've been on the record to say we're known for lifetime 100%. I'd say at the moment, that's not on their radar. They've been publicly clear about that, but it doesn't mean that the world doesn't shift. You know, we like that asset, but we also like other copper assets if we can find the right pricing point. So we'd like to have one more operating copper and zinc asset and then probably another project close to execution on either of those two commodities, if that helps, Glyn. But I'm probably guessing, like many other players out there, we'd like something similar as well. The advantage, I guess, we have is we don't necessarily need the scale of some of the majors.

I appreciate that. Thanks, Graeme.

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

Morning, all. Thanks very much for the opportunity. Just two from me. Firstly, just the aluminum market, obviously spots come back a fair way. I'm just interested in, you know, what you're seeing there in terms of you read on China, but also you read on the bauxite market out of Guinea, and then I'll come back with my second question.

Yeah, look, I mean, I think a good one to sort of cover, because clearly Illumina was on a bit of a tear for a period of time, and that was really driven by some production capacity issues in Australia. But obviously another big one was some of the disputes that were occurring around Guinea and exports not sort of flowing to the Chinese market. You know, what we are seeing now, if you look at the spot cargo availabilities in the short term, you have certainly seen an easing in that space. We have seen some of the uncertainties around exports in Guinea sort of start to come off a little bit. And as a consequence, you started to see some of the actual, you know, titles in the market start to evaporate. You know, we've also seen exemption of production from the glass and the refineries. We're seeing some more oil material coming out of Indonesia as well. So, you know, from our expectations, we would see the market has shifted dramatically from where it was six to 12 months ago. And I'd expect to see a little bit more downward pressure, if you like, on the aluminum pricing in the short term. So we would probably see, if you think about the next six months, you know, you're probably trading in a range of somewhere between $400 to $500 a tonne.

Great, thank you. And then maybe just the other one. So I know you've got fairly defensible grounds for not giving us a bit of guidance on the aluminium costs, but I just wonder, you know, obviously this is where some growth is coming on a one, two year forward looking basis in terms of volumes. The aluminium market's changing, you know, quite a lot in terms of the China cap, in terms of, you know, tariffs. in the US and potentially, you know, it can be a more important contributor to the business. You know, what can you do there to maybe help us understand the cost base a little more, perhaps sort of looking forward?

Yeah, look, Colin, good question. As you know, we're sort of quieted ourselves pretty much from day one on providing the level of transparency and detail. We can certainly have provided in the past and we can again if you think about the composition For example, if you take Hillside, 61% of our cross-base in the first half of the year came from raw materials and consumables. And I'll come back to what that looks like in a second, but that's something clearly we don't have a huge amount of control over some of the pricing there. What I would say on top of the 61%, 27% of the cost base is energy. So if you add that up together for hillside, you're looking at about, you know, 88% is driven by market pricing. If you sort of go to Moselle, Moselle has a very similar structure where 54% is raw materials and consumables, with the difference between the two being sort of structured around how the alumina pricing works at Moselle, which is tied to the percentage of alumine, and their energy cost is around 30%. What we would also say, if you take a step back and sort of think about it, if you've got roughly 80% to 88% of your costs sort of driven by some of those market consumables, what do they look like? And I think that's where it becomes more challenging because it does fluctuate a fair bit. So if we have a look at our historical performance in that space and talk about what it looks like, for example, if we look at a smelter raw material basket cost of the inflation, So that includes your coke, your pitch, your ATF, your alumina as a percentage of aluminium. You know, if you look at H1, Fi of 23, it was 43%. H2, it's 44, 23. H1 of Fi of 24, it's 42. H2 of 24, it's 43. First half of 25, it was 55%. And some of the big drivers in that, you know, if you look, for example, at our caustic, You know, our caustic in the first half of the year was trading about $430 a tonne, whereas in 24 it was $372. You know, that's one of the big drivers when we look in those spaces. And the coke itself was $382 versus $458. So, you know, that's where we probably see a fair bit of the movement. And the other clear one is the alumina price has been on, you know, quite a tear for a period of time. 50% of our product that we produce in the Illumina space across our business goes into the smelters on average. I think it was 51% in this half, but on average it's about 50%. So it's not the fact that we don't like giving that level of information, but if you want to pitch, coke, caustic price, it's very hard for us to sort of go to that level of detail because it just moves in variables that we don't control. So again, as a rule of thumb, You know, you think about a smelter, generally speaking, you'll probably see about 80% to 88% of your costs made up of power and made up of actually those raw materials. Things like your labour and the costs that you control is probably closer to 15%.

That's great. Thanks, Graeme.

Thank you. That does conclude our time for questions. I'll now hand back to Mr Kerr for closing remarks.

Thanks, everyone. I appreciate you taking the time today to sort of go through some of those questions and where the business is at. I guess the messages I'd leave you with is, look, one, our operations are performing well and have been over the last couple of halves. Our balance sheet is strong. We do expect stronger cash flow generation in the second half as we see an unwind of our working capital. You know, our growth pipeline, we have the ability to actually have significant growth in both the zinc and copper. Our unchanged capital management framework, as always, is designed to reward shareholders as our financial performance improves. And I think, you know, our team have done a really good job over the last six months battling some of the headwinds around the Genco recovery, but also getting the approvals at Worsley. We should see the benefits of those over the next 12 to 18 months. But thanks, everyone, for your time and look forward