South32 Faces Energy Supply Risks Amid Strong FY25 Production and Portfolio Shifts
South32 has exceeded its FY25 production targets, driven by a 20% increase in copper output and significant progress at its Hermosa project, while streamlining its portfolio through key divestments.
- FY25 production exceeded guidance with 20% copper and 6% aluminium growth
- Hermosa project advances with main shaft sinking and process plant construction
- Divestment of Illawarra Metallurgical Coal completed; Cerro Matoso sale agreed
- Australia Manganese resumes exports post-cyclone; Mozal Aluminium faces electricity supply uncertainty
- US$350M returned to shareholders via dividends and share buy-back
Strong Operational Performance
South32 delivered a robust FY25 performance, surpassing its production guidance by achieving 102% of the target. The company reported a notable 20% increase in copper production and a 6% rise in aluminium output, underscoring operational momentum across its portfolio. Sales volumes grew by 21% in the quarter, facilitating a working capital unwind of approximately US$225 million in the second half of FY25.
Portfolio Streamlining and Strategic Divestments
Continuing its focus on higher-return assets, South32 completed the sale of Illawarra Metallurgical Coal in the first half of FY25 and entered into a binding agreement to divest Cerro Matoso, expected to close in late H1 FY26. These moves align with the company’s strategy to concentrate on minerals critical to the global energy transition. The Cerro Matoso divestment will result in an impairment expense of approximately US$130 million, reflecting the transaction's terms.
Hermosa Project Progress
Capital investment in the Hermosa project reached US$517 million in FY25, with significant milestones achieved at the Taylor zinc-lead-silver deposit. Construction commenced on the main shaft and process plant, while the exploration decline for the Clark manganese deposit remains on track for completion by the end of 2025. The US Forest Service released a Draft Environmental Impact Statement, advancing the federal permitting process.
Operational Recovery and Challenges
Australia Manganese successfully resumed export shipments following disruptions caused by Tropical Cyclone Megan, exceeding production guidance by 11%. Meanwhile, Mozal Aluminium operated near nameplate capacity despite ongoing uncertainty over future electricity supply, which has led South32 to recognize an impairment expense in FY25. The company is actively engaging with stakeholders to secure affordable power beyond March 2026, critical for Mozal’s continued operation.
Financial Discipline and Shareholder Returns
South32 maintained operating unit costs in line with guidance, reflecting strong cost management. The company returned US$350 million to shareholders through fully-franked dividends and an on-market share buy-back, nearing completion of its US$2.5 billion capital management program. Additionally, distributions from the Sierra Gorda joint venture contributed US$176 million in FY25, supporting cash flow and investment capacity.
Bottom Line?
With production momentum and strategic portfolio moves, South32 is poised for growth but must navigate energy supply risks and divestment execution in FY26.
Questions in the middle?
- How will South32 manage the electricity supply uncertainty impacting Mozal Aluminium beyond March 2026?
- What are the implications of the Cerro Matoso divestment on South32’s nickel exposure and future earnings?
- Can the Hermosa project milestones translate into timely production ramp-up and sustained base metals growth?
