South32 beats guidance, exits aluminium

About South32 Limited

South32 Limited (ASX: S32) is a globally diversified mining and metals company headquartered in Perth, Western Australia, with operations spanning Australia, South Africa, Colombia, Chile, Brazil and the United States. The company was spun out of BHP in May 2015 and listed simultaneously on the ASX, London Stock Exchange and Johannesburg Stock Exchange, giving it one of the broadest shareholder bases of any Australian-headquartered resources company.

South32’s portfolio spans manganese, silver, lead, zinc, copper, alumina and aluminium across multiple operating jurisdictions. Its wholly owned Cannington mine in Queensland is one of the world’s largest silver and lead producers. In manganese, South32 operates Australia Manganese (60% share) in the Northern Territory and South Africa Manganese (54.6% share). The company holds a 45% non-operated interest in the Sierra Gorda copper mine in Chile and is developing the Hermosa project in Arizona, United States, which hosts the Taylor zinc-lead-silver deposit and the Clark battery-grade manganese deposit. Following the announced sale of its aluminium value chain assets to Alcoa, South32 is repositioning as a pure-play upstream base metals company, with approximately 85% of pro-forma earnings expected to come from base and precious metals and approximately 55% production growth from approved projects.

The quarter

South32’s June 2026 quarterly report, released on 20 July, confirmed a strong finish to FY26 with group production exceeding guidance across most assets and quarterly sales volumes rising 15% as inventories were drawn down and logistics disruptions resolved.

At Sierra Gorda, full-year copper equivalent production of 87.1kt came in 2% above guidance despite lower grades in Q4 FY26, where the processing of lower-grade stockpiled material supplemented ore feed following weather-related impacts to mine access. Q4 copper sales rose 13% as weather-related port congestion eased. The joint venture also approved the fourth grinding line project on 30 June, a high-returning brownfield expansion with capital expenditure of approximately US$725 million (100% basis) across FY27 to FY30 that is expected to lift throughput capacity to around 60 Mtpa and grow South32’s share of copper equivalent production by approximately 30% from FY31.

At Cannington, full-year zinc equivalent production of 205.4kt exceeded guidance by 2%, supported by an 11% increase in ore processed as lower-grade stockpiled material was milled. Q4 production jumped 29% quarter-on-quarter as underground mining rates recovered following weather-related disruptions in Q3 and third-party rail access was restored, with silver, lead and zinc sales all surging in the final quarter. South32 continued to advance underground and open pit development studies to extend Cannington’s mine life, with a final investment decision on the open pit targeted for H1 FY28.

Australia Manganese produced 3,031kwmt in FY26, in line with revised guidance, managing significant wet season impacts and elevated site water volumes. South Africa Manganese exceeded guidance by 4% at 2,085kwmt, with Q4 production up 6% following planned maintenance in Q3. Manganese distributions of US$102 million (South32 share) were received from the manganese equity accounted investment in FY26.

In aluminium, Worsley Alumina production was broadly flat at 3,722kt, while Brazil Alumina set a record at 1,411kt, running above nameplate capacity. Hillside Aluminium was largely unchanged at 717kt. Mozal Aluminium was placed on care and maintenance in March 2026 as planned, with remaining finished goods inventories sold through Q4.

Strategic significance

The defining event of the period was the agreement to sell South32’s aluminium value chain — covering Worsley Alumina, Brazil Alumina, Brazil Aluminium and Hillside Aluminium, but excluding Mozal Aluminium — to Alcoa Corporation for an implied enterprise value of up to US$5.6 billion plus approximately US$1.2 billion of related rehabilitation provisions. The transaction, announced on 1 July 2026 and subject to South32 shareholder approval, repositions the company around high-margin, long-life base metals assets in favourable jurisdictions, with capital redeployed toward copper, zinc and manganese growth. South32 returned US$327 million to shareholders in FY26, comprising US$292 million in fully-franked ordinary dividends and US$35 million via its on-market share buyback, with the US$2.6 billion capital management program 92% complete.

At Hermosa, the US Forest Service’s Final Record of Decision received on 7 July completes the federal permitting process for the Taylor project, with a Notice to Proceed on track for Q1 FY27. Taylor is now guided to first production in H2 FY28 with growth capital of US$3.3 billion, steady-state EBITDA of approximately US$650 million per annum and a net present value of approximately US$3.1 billion as at 1 July 2026.

Conclusion

South32 exits FY26 as a business in transition: operationally strong, with group production guidance beaten across most assets, and strategically transformed by the Alcoa deal and Hermosa’s permitting milestone. With the aluminium divestment expected to complete in H2 FY27 and Taylor moving toward construction, the market will look to the FY26 results for confirmation that cash generation, balance sheet strength and the base metals growth pipeline are all pointing in the same direction.