South32 Faces Execution Risks as It Advances Major Base Metals Projects

Financial Turnaround and Operational Momentum

South32 has delivered a marked financial recovery in the fiscal year ended June 2025, reporting a profit after tax attributable to members of US$213 million, reversing a loss of US$203 million in the prior year. Underlying earnings climbed to US$666 million, supported by a 7% increase in underlying EBITDA to US$1.9 billion. This performance reflects strong operational execution across the portfolio, notably a 20% production increase in copper and 6% in aluminium.

The company’s operational recovery plan at Australia Manganese was successfully completed, with export shipments resuming full capacity in early FY26. This milestone is critical given the temporary suspension caused by Tropical Cyclone Megan in the prior year. South32 also progressed its portfolio transformation by divesting Illawarra Metallurgical Coal in August 2024 and agreeing to divest Cerro Matoso, expected to complete in the first half of FY26.

Strategic Growth Investments and Project Development

South32 is investing heavily in growth, allocating US$517 million to the Hermosa project in the United States, a regional-scale base metals development with significant potential. Construction at the Taylor deposit, the first development phase of Hermosa, is advancing with key infrastructure works underway and capital expenditure guidance of US$650 million for FY26. The project is positioned to become a top-10 global zinc mine with a 28-year operating life, producing critical minerals including zinc, lead, silver, and battery-grade manganese.

Exploration efforts continue to expand the mineral resource base at Hermosa, with promising results at the Peake and Flux prospects suggesting a potentially continuous mineralised system. The company is also progressing copper growth options at Sierra Gorda and other regional projects, aligning with the global energy transition demand for critical minerals.

Balance Sheet Strength and Capital Management

South32 ended FY25 with net cash of US$123 million, a significant improvement from net debt of US$762 million the previous year. This was driven by strong operating cash flow and proceeds from asset sales. The company maintains a robust liquidity position with US$1.8 billion in cash and an undrawn US$1.4 billion revolving credit facility. Credit ratings were reaffirmed at BBB+ by S&P and Baa1 by Moody’s.

Capital management remains disciplined, with US$350 million returned to shareholders through dividends and share buy-backs during FY25. The existing capital management program has been extended by 12 months to September 2026, with US$144 million remaining to be returned. South32’s framework balances investment in growth projects, safe and reliable operations, and shareholder returns.

Safety, Environmental and Market Outlook

Safety performance improved with lost time injury frequency and total recordable injury frequency reduced by 30% and 27% respectively, supported by the LEAD Safely Every Day program. Environmental approvals were secured for new mining areas at Worsley Alumina, and the company is advancing decarbonisation initiatives, including funding from the Australian Renewable Energy Agency to support steam electrification.

Looking ahead, South32 expects continued operational momentum in FY26, with stable or improved production guidance across key commodities. The company’s portfolio is increasingly focused on higher-margin commodities critical to the energy transition, including copper, zinc, nickel, and battery-grade manganese. Cost guidance reflects inflationary pressures but also benefits from efficiency gains and capital reprioritisation.