South32 Ltd (SHTLF) (FY 2026) Earnings Call Highlights: Record EBITDA and Strategic Shift to ...

Q: Can you step through the confidence around the higher mill throughput and recoveries at Sierra Gorda for FY27 and FY28, and is it related to changes in the mine plan and phases 7 and 8 having less clay? A: Matthew Daley, CEO: We've completed around 85,000 meters of drilling, which gives us much more confidence in the mine plan and reserve, contributing to the 61% uplift in reserves. As we move into phases 7 and 8, which contain the majority of tons for FY27 and '28, we are seeing higher copper grades and better mineralogy. With lower clay, we have more favorable processing conditions, which improves our ability to push ore through the mill and enhance recoveries, giving us confidence for the next couple of years.

Q: Regarding the Sierra Gorda reserve upgrade, can you step through the changes made to the mine plan, given the reserve upgrade wasn't based on a higher copper price? A: Matthew Daley, CEO: The increase in reserve is not due to commodity price changes; we used a conservative price deck below consensus. The upgrade is supported by the additional 85,000 meters of drilling over the last couple of years, which allowed us to convert and upgrade confidence from mineral resource to mineral reserve. We ran new pit shells and pushback designs incorporating this higher confidence, leading to a life extension and underpinning the decision for the fourth grinding line. This combination of a bigger reserve, longer life, and higher throughput from FY31 improves confidence and produces more cash flow for a longer period.

Q: Can you run through how much low-grade stockpile material you have at Cannington and what's baked into the FY27 guidance? A: Matthew Daley, CEO: We have around 70 million tons in resource and only around 11 million tons in reserve at Cannington. The low-grade material is part of our strategy to fill mill capacity. We had successful trials last financial year, building confidence for this year. We've pushed the mills up towards a 3-million-ton run rate. We are progressing a feasibility study on the open cut, looking at running it in parallel with the underground. This integrated mine plan could convert more underground resource into reserve and extend life well into the end of the next decade. We expect to update the market on this study work around the half-year results.

Q: What are the critical path items for rectifying the water issues at Australia Manganese (GEMCO), and is the FY28 guidance conservative? A: Matthew Daley, CEO: The operation started the year well, but we are in the dry season. We've guided a range due to uncertainty around water and weather coming into the next wet season. We're working with the NT government and traditional owners to get permits to discharge larger volumes of water, which requires some capital and construction works, mainly pipework. There is a forecast for a super El Nino, which could lead to a later wet season and push us towards the top end of guidance. The range reflects these moving parts, and we'll update as work progresses.

Q: Has there been further thought on the updated capital allocation framework post-transaction, and how should we think about solving for long-term value? A: Sandy Sibenaler, CFO: The current framework with a 40% payout ratio remains in play until completion. Post-completion, the new framework will prioritize safe and reliable capital and a strong balance sheet, with a change in positioning relative to being investment grade. We'll continue allocating capital to committed growth projects like Taylor. Excess capital will compete between dividends, share buybacks, and growth options, contemplating what provides the best per-share value. We have a number of organic growth options we are committed to pursuing.

Q: Is there a net cash balance you would solve for, or just the investment-grade rating? A: Sandy Sibenaler, CFO: We haven't put out a net cash position or pursuit of one; that's not part of our framework. It's nice to be sitting in that position now given the task ahead, but we are not committed to that going forward. We expect the business to evolve, and the position is to have a strong balance sheet.

Q: Given manganese is not core, are there any stage gates or catalysts before a strategic review, and are you expecting the Anglo American and Teck Resources merger to change anything? A: Matthew Daley, CEO: Our focus is running those assets safely and stably, managing water challenges at GEMCO and logistics constraints in South Africa. Our preferred commodities are copper and zinc, so capital allocation will move towards growth in those areas. For manganese, the focus is safe and stable operations.

Q: Are there any expected updates or quantifiable outcomes from the MOU with Spence? A: Matthew Daley, CEO: We're excited about the MOU between our partners, KGHM and BHP. All partners are directionally aligned to move this forward. The most obvious opportunity is the oxide stockpile, where we have about 300,000 tons of contained copper in 110 million tons of oxide stockpile, and Spence has capacity through their leaching and SX-EW plant. Opportunities are varied, including sulfides, infrastructure, consumables, power, and tailings. These things can move slowly, but all partners are working well together to progress this.

Q: Should we think the 40% payout is a floor going forward, and could the Spence MOU lead to a broader JV? A: Sandy Sibenaler, CFO: We are not committed to the 40% payout ratio going forward. Post-transaction, we are a growth-focused company pursuing increases in copper and zinc volumes. The 40% payout will not be a floor; we will not have a fixed payout ratio and will look at it flexibly for the best value for shareholders. Matthew Daley, CEO: The MOU sets up opportunities to work constructively between the two operations. There's low-hanging fruit like consumables and oxide. To understand full potential, both teams will put data into a data room, work through fatal flaws, and progress to technical work. We'll progress this over coming quarters and update as it progresses.

Q: Has Anglo now got the bandwidth to re-engage on a sale of SA Manganese, and could you move on acquisitions now or do you need to wait for the shareholder vote? A: Matthew Daley, CEO: We haven't updated since last discussing Anglo's position. We're likely to catch up with Anglo in the coming months at conferences or ICMM, but they are focused on

For the complete transcript of the earnings call, please refer to the full earnings call transcript .