South32 Surpasses FY26 Production Targets and Accelerates Shift to Base Metals with Alcoa Aluminium Asset Sale

Strategic Portfolio Transformation: Aluminium Sale to Alcoa and Focus on Base Metals

South32’s sale of its aluminium value chain assets to Alcoa Corporation for up to US$5.6 billion in enterprise value, announced on 1 July 2026, signals a pivotal strategic shift to concentrate on base metals. Excluding Mozal Aluminium, which has moved to care and maintenance, the transaction includes approximately US$1.2 billion in rehabilitation provisions. Completion is expected in H2 FY27, subject to shareholder and regulatory approvals. Post-transaction, around 85% of pro-forma earnings will derive from base and precious metals, reshaping South32’s earnings profile.

CEO Matt Daley, who started on 1 July 2026, highlighted the company’s focus on "high-margin, long-life assets in favourable jurisdictions," with anticipated production growth of about 55% from approved projects. This repositioning aims to enhance shareholder returns by focusing capital and operations on upstream base metals assets.

FY26 Production Outperformance Across Copper, Zinc, and Manganese

South32 delivered strong operational results in FY26 despite challenges such as elevated freight costs and stronger producer currencies. Cannington, the 100% owned zinc, lead, and silver mine in Queensland, produced 205.4kt payable zinc equivalent, 2% above guidance, aided by processing 11% more ore and a 29% quarterly production surge in Q4 FY26 following weather disruptions. FY27 guidance for Cannington remains at 204.7kt zinc equivalent.

Sierra Gorda, a 45% non-operated joint venture in Chile, achieved 87.1kt payable copper equivalent, 2% above guidance despite lower grades in Q4 FY26. South Africa Manganese (54.6% share) exceeded guidance by 4%, producing 2,085kwmt, while Australia Manganese (60% share) delivered 3,031kwmt, aligning with revised guidance despite wet season impacts. Combined manganese operations generated US$102 million in net distributions to South32 in FY26, including US$42 million in Q4.

Sierra Gorda Fourth Grinding Line: US$725 Million Expansion to Boost Production by 30%

On 30 June 2026, the Sierra Gorda joint venture approved a fourth grinding line expansion to increase processing capacity by approximately 25% to 60 million tonnes per annum (100% basis). South32’s share of copper equivalent production is expected to grow by about 30% from FY31. The project’s growth capital is estimated at US$725 million from FY27 to FY30. This brownfield expansion aligns with South32’s strategy to enhance base metals production.

Exploration continued at the Peake copper deposit during FY26 to assess connectivity with Taylor Deeps. Sierra Gorda distributed US$401 million (South32 share) in net distributions in FY26, including US$86 million in Q4. The copper price realized at Sierra Gorda averaged US$6.33 per pound in H2 FY26, a 14% increase from H1.

Hermosa Taylor Project Permitting Finalized, Production Targeted for H2 FY28

The Hermosa Taylor zinc-lead-silver project reached a major milestone on 7 July 2026 with the U.S. Forest Service’s Final Record of Decision, completing federal permitting under NEPA. A Notice to Proceed is expected in Q1 FY27, enabling progression toward first production in H2 FY28. South32 invested approximately US$710 million in growth capital during FY26 to advance underground and surface infrastructure development.

The project’s updated life is approximately 33 years, five years longer than prior estimates, with steady-state EBITDA projected at about US$650 million annually and a net present value near US$3.1 billion. Underground lateral development and shaft station construction were completed in Q4 FY26, with the ventilation shaft on track for Q1 FY27. Growth capital for Taylor is now US$3.3 billion, including US$50 million in FY26 lease payments. Capitalised exploration investment totaled US$30 million, including drilling at the Peake copper deposit.

Ambler Metals Arctic Deposit Advances with Drilling and FAST-41 Permitting

The Ambler Metals joint venture, with South32 holding 50%, initiated summer fieldwork to progress development studies for the high-grade Arctic polymetallic deposit. Q4 FY26 activities included geotechnical and condemnation drilling for feasibility and engineering. On 14 May 2026, Arctic was designated a covered project under FAST-41, expediting federal permitting. The federal government published the permitting timetable post-quarter, clarifying regulatory approval pathways.

Arctic offers significant exploration upside within South32’s base metals portfolio strategy. Its high-grade nature and FAST-41 status position it to contribute to production growth within the approved development pipeline, supporting the company’s goal to convert exploration assets into producing operations.

Aluminium Operations Wrap Up FY26 with Strong Production and Mozal Care and Maintenance Transition

Before the aluminium value chain sale announcement, South32’s aluminium operations met or exceeded FY26 production guidance. Worsley Alumina (86% share) produced 3,722kt of alumina, stable year-on-year despite a Q3 weather-related gas supply disruption. Brazil Alumina (36% non-operated share) set a record with 1,411kt, a 5% increase over FY25 and 4% above guidance. Hillside Aluminium (100% share) produced 717kt, steady despite South African load-shedding impacts.

Mozal Aluminium (63.7% share) produced 248kt to March 2026 before transitioning to care and maintenance as planned. Q4 FY26 sales totaled 46kt from inventory clearance. Mozal’s transition costs, including employee separations and contract terminations, are estimated at US$33 million, plus a US$89 million non-cash inventory write-down. These one-off charges will be excluded from Underlying earnings as significant items. Mozal’s care and maintenance marks South32’s move away from aluminium, to be finalized upon Alcoa transaction closure.

Q4 FY26 Sales Volumes Rise 15% Driven by Inventory Normalization and Rail Access Recovery

Group quarterly sales volumes increased 15% in Q4 FY26, supported by restored third-party rail access at Cannington after Q3 weather disruptions and completion of Mozal Aluminium inventory clearance. Working capital is expected to unwind by approximately US$200 million in H2 FY26, contrasting with a US$130 million build in H1 FY26, positively impacting cash flow.

Operational recovery from Q3 disruptions improved supply chains and inventory management, setting a stronger baseline for FY27. However, elevated water management at Australia Manganese and producer currency impacts remain operational challenges.

Capital Deployment and Shareholder Returns: US$327 Million Returned in FY26

South32 returned US$327 million to shareholders in FY26, including US$292 million in fully-franked dividends and US$35 million via on-market share buybacks. The buyback acquired 17 million shares at an average price of A$3.08. Since program inception, US$1.8 billion has been allocated to buybacks, purchasing 837 million shares at A$3.06 average, alongside US$525 million in special dividends. The capital management program is 92% complete, with US$209 million remaining before its extension or expiry on 26 February 2027.

Additionally, South32 invested about US$325 million in Group capital expenditure (excluding equity accounted investments and Hermosa) and paid US$285 million in Group taxes during FY26. Group and unallocated Underlying EBIT expenses are expected around US$60 million, mainly reflecting favourable aluminium inventory adjustments. Lease liabilities of approximately US$115 million were added to the balance sheet. The FY26 Group Underlying effective tax rate is projected at approximately 33%, reflecting jurisdictional corporate tax rates and earnings mix.

Commodity Price Realisations and Cost Management Amid Freight and Currency Challenges

South32 benefited from significantly higher commodity prices in FY26 compared to FY25. Sierra Gorda payable copper averaged US$5.92 per pound, up 42%, with H2 FY26 prices at US$6.33 per pound, a 14% increase over H1. Silver prices at Sierra Gorda and Cannington rose 123% and 108% respectively. Australia Manganese prices increased 15% to US$4.23 per dry metric tonne unit (FOB), while South Africa Manganese prices declined 2% to US$3.65 per dmtu (FOB) due to sales timing.

Alumina prices declined sharply, with Worsley Alumina down 30% to US$363 per tonne and Brazil Alumina down 36% to US$356 per tonne. Conversely, aluminium prices strengthened, with Hillside Aluminium at US$3,250 per tonne and Brazil Aluminium at US$3,084 per tonne, both up 20% year-on-year.

Operating Cost Pressures Managed Despite Middle East Conflict, Freight Inflation, and Currency Headwinds

FY26 operating costs rose due to Middle East conflict impacts, higher raw material prices, and freight inflation. Stronger producer currencies also pressured costs. Despite this, South32 maintained cost discipline through stable production and efficiency initiatives. Sierra Gorda’s costs are about 10% above guidance due to a one-off workforce payment and diesel price increases. Australia Manganese costs are approximately 10% above guidance, driven by diesel and currency effects; South Africa Manganese costs are roughly 5% above guidance but partially offset by improved rail logistics.

Cannington’s operating costs are expected 10% below guidance due to higher ore processing volumes offsetting royalty increases and currency strength. Worsley Alumina costs align with guidance, while Brazil Alumina and Brazil Aluminium costs remain steady at approximately US$320 and US$2,919 per tonne respectively. Hillside Aluminium costs are stable at about US$2,295 per tonne, influenced by rand fluctuations and input price volatility. This cost control positions South32 to manage ongoing inflation while advancing development projects.

Leadership Transition and FY27 Production Outlook

Matt Daley became South32’s CEO and Managing Director on 1 July 2026, completing the leadership transition from Graham Kerr. This change coincides with the Alcoa transaction announcement and Hermosa Taylor project nearing final permitting. Daley emphasizes operational excellence, financial strength, and growth in base metals, guiding the company through its portfolio transformation while focusing on shareholder returns.

FY27 production guidance remains mostly unchanged: Sierra Gorda at 90.2kt copper equivalent, Cannington at 204.7kt zinc equivalent, South Africa Manganese at 2,000kwmt, Worsley Alumina at 3,900kt, Brazil Alumina at 1,360kt, Brazil Aluminium at 140kt, and Hillside Aluminium at 720kt. Australia Manganese guidance will be updated following water management assessments, reflecting operational complexities and management’s commitment to accurate forecasting.