TIDMS32
RNS Number : 0735P
South32 Limited
14 October 2021
14 October 2021
South32 Limited
(Incorporated in Australia under the Corporations Act 2001
(Cth))
(ACN 093 732 597)
ASX / LSE / JSE Share Code: S32 ADR: SOUHY
ISIN: AU000000S320
south32.net
SOUTH32 TO ACQUIRE A 45% INTEREST IN THE SIERRA GORDA COPPER
MINE
South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) is
pleased to announce that it has entered into two binding
conditional agreements with Sumitomo Metal Mining (TYO: 5713) and
Sumitomo Corporation (TYO: 8053) (collectively Sumitomo) to acquire
a 45% interest in the Sierra Gorda copper mine in Chile (Sierra
Gorda) via the acquisition of a 45% indirect interest in Sierra
Gorda S.C.M. (SGSCM) for an upfront cash consideration of
US$1.55B[1] (Transaction). South32 has also agreed to provide
Sumitomo with a contingent price-linked consideration of up to
US$500M, payable at threshold copper production rates and prices in
the years 2022-25[2].
Sierra Gorda is an operating mine in the prolific Antofagasta
copper mining region, which is expected to produce 180kt of copper,
5kt of molybdenum, 54koz of gold and 1.6Moz of silver in 2021 (100%
basis)[3]. The acquisition provides South32 with joint control
alongside 55% joint venture partner KGHM Polska Miedz (KGHM), a
global miner listed in Poland.
-- The Transaction is expected to be immediately earnings accretive,
with the upfront purchase consideration benchmarking favourably
to historical investment, production and valuation multiples
(3.3x FY21 Underlying EBITDA)[4].
-- Funding will be via a combination of cash on hand and an underwritten
US$1B acquisition debt facility that will maintain our balance
sheet strength and flexibility. The Group's unaudited net cash
balance at the end of September 2021 was US$660M.
-- We expect to use our current strong cash generation to minimise
acquisition debt facility utilisation, replacing it with long-term
funding following completion, with the intention of maintaining
our investment grade credit rating through the cycle[5].
-- We will continue our flexible execution approach with regards
to the remaining US$231M capital management program balance.
South32 Chief Executive Officer, Graham Kerr said "We are
actively reshaping our portfolio for a low carbon world and the
acquisition of an interest in Sierra Gorda will increase our
exposure to the commodities important to that transition. Copper is
a critical metal in the decarbonisation of the world's energy
networks and has strong long-term market fundamentals.
"Adding Sierra Gorda further improves our portfolio and is
expected to immediately lift Group margins and earnings, supporting
future shareholder returns while retaining strength and flexibility
in our Balance Sheet.
"The transaction expands our operating and development presence
in the Americas and provides exposure to a long-life asset with a
large resource base. The operation has existing opportunities to
unlock further upside through improved production efficiency,
resource expansion and exploration.
"Through our extensive due diligence of the opportunity over the
past nine months, we believe we have identified an operation that
is benefitting from significant historical investment and current,
capital efficient de-bottlenecking work. The operation is serviced
by excellent infrastructure, including access to renewable power
and seawater for processing. Looking ahead we see an opportunity
for continued strong performance at Sierra Gorda with our new
partner, KGHM, that can deliver substantial value to South32's
shareholders."
Transaction details
Sumitomo has agreed to provide South32 with a tax indemnity in
relation to potential changes in the Chilean in-country tax regime
as it pertains to SGSCM up to an agreed cap.
The Transaction is subject to the waiver or non-exercise of
pre-emption rights held by KGHM under the
Joint Venture Agreement. If KGHM exercises its pre-emption
rights then the Transaction will not proceed and Sumitomo will
instead dispose of the 45% interest to KGHM on the same terms and
conditions as the agreement with South32. There will be minimal
fees payable by South32 on the acquisition debt facility in this
scenario.
Completion of the Transaction is expected around the end of
calendar year 2021, subject to conditions including competition and
regulatory approvals, for which South32 has agreed to a break fee
payable in limited circumstances.
Sierra Gorda overview
Sierra Gorda is a conventional open pit mine located in the
Antofagasta region, at relatively low altitude (1,700m above sea
level) in northern Chile. The mine commenced construction in 2011,
ahead of commissioning in 2014. The operation benefits from high
quality, modern processing equipment, with historical capital
investment to CY20 of US$5B (100% basis). It is serviced by
established infrastructure, including renewable power and a
seawater pipeline, with freight rail and a national highway
connecting the operation to the ports of Antofagasta and
Angamos.
Sierra Gorda is a large scale operation, with a
copper-molybdenum-gold sulphide mineral reserve[6] of more than 1
billion tonnes, and a mine life of more than 20 years ([7]) . The
scale and costs of the operation benchmark favourably with other
top Chilean mines of similar scale with the operation on-track to
produce copper equivalent production of 214kt in CY21e[8] at
Operating unit costs of US$1.29/lb[9].
There are a range of growth and improvement opportunities
available to Sierra Gorda, including the capital efficient
de-bottlenecking project that is underway to lift plant throughput
by 6% to 50Mtpa and copper recoveries by 2% to 85% in the medium
term[10]. A feasibility study is underway for a brownfield Oxide
Project which is assessing the opportunity to process material
stockpiled at the mine[11]. Potential exists for further
exploration upside at the Pampa Lina deposit and across the
regional land package.
KGHM is a Polish multinational corporation that employs around
34,000 people around the world and has been a major copper and
silver producer for more than 50 years. KGHM has eight mines
located in Poland, Canada, the USA and Chile and is actively
advancing a further four projects.
1 Subject to customary working capital and net debt adjustments.
2 50% of incremental revenue realised above the following copper
price thresholds, only where payable copper production exceeds
the agreed thresholds: CY22: US$4.10/lb and 158kt Cu, CY23:
US$3.90/lb and 151kt Cu, CY24: US$3.85/lb and 166kt Cu, CY25:
US$3.80/lb and 158kt Cu.
3 Refer to production guidance and production target as outlined
in "Foreign Estimates - clarifying statements as required by
ASX Listing Rule 5.12" in this announcement. Key facts and
material assumptions to support the reasonable basis for disclosing
production targets and forecast financial information is provided
in Annexure B of this announcement.
4 Upfront Enterprise Value (EV) refers to the upfront bid EV
of US$1.7B, which comprises US$1.55B upfront purchase consideration
and target net debt of US$150M.
5 We expect to maintain our current BBB+ and Baa1 credit ratings,
with S&P and Moody's respectively.
6 Prepared in accordance with NI 43-101 and the Canadian Institute
of Mining, Metallurgy and Petroleum (CIM) Standards.
7 Refer to "Foreign Estimates - clarifying statements as required
by ASX Listing Rule 5.12" in this announcement.
8 Recovered metal in CuEq terms is calculated using the total
revenue divided by the Cu price. Average metallurgical recovery
assumptions are
83% for Cu, 57% for Molybdenum and 53% for gold. The prices
used are Sierra Gorda's CY20 realised prices excluding the
impact of treatment and refining charges.
Operating unit cost is Revenue less Underlying EBITDA, excluding
9 third party sales and TCRCs, divided by sales volumes.
10 Medium term target is expected average CY22 to CY26.
11 Stockpiled ore referred to in this announcement is unclassified
and South32 cannot confirm whether the estimate has been compiled
using an appropriate foreign reporting co
Adviser
UBS AG is acting as financial adviser and Herbert Smith
Freehills as legal adviser to South32. Cariola Díez Pérez-Cotapos
is acting as Chilean legal adviser to South32.
About us
South32 is a globally diversified mining and metals company. Our
purpose is to make a difference by developing natural resources,
improving people's lives now and for generations to come. We are
trusted by our owners and partners to realise the potential of
their resources. We produce bauxite, alumina, aluminium,
metallurgical coal, manganese, nickel, silver, lead and zinc at our
operations in Australia, Southern Africa and South America. With a
focus on growing our base metals exposure, we also have two
development options in North America and several partnerships with
junior explorers around the world.
Investor Relations
----------------------------- ---------------------------
Alex Volante Tom Gallop
T +61 8 9324 9029 T +61 8 9324 9030
M +61 403 328 408 M +61 439 353 948
E Alex.Volante@south32.net E Tom.Gallop@south32.net
Media Relations
----------------------------- ---------------------------
Miles Godfrey Jenny White
M +61 415 325 906 T +44 20 7798 1773
E Miles.Godfrey@south32.net M +44 7900 046 758
E Jenny.White@south32.net
Further information on South32 can be found at www.south32.net
.
This announcement contains inside information.
Approved for release by Graham Kerr, Chief Executive Officer
JSE Sponsor: UBS South Africa (Pty) Ltd
14 October 2021
Forward-looking statements
This release contains forward-looking statements, including
statements about trends in commodity prices and currency exchange
rates; demand for commodities; production forecasts; plans,
strategies and objectives of management; capital costs and
scheduling; operating costs; anticipated productive lives of
projects, mines and facilities; and provisions and contingent
liabilities. These forward-looking statements reflect expectations
at the date of this release, however they are not guarantees or
predictions of future performance. They involve known and unknown
risks, uncertainties and other factors, many of which are beyond
our control, and which may cause actual results to differ
materially from those expressed in the statements contained in this
release. Readers are cautioned not to put undue reliance on
forward-looking statements. Except as required by applicable laws
or regulations, the South32 Group does not undertake to publicly
update or review any forward-looking statements, whether as a
result of new information or future events. Past performance cannot
be relied on as a guide to future performance. South32 cautions
against reliance on any forward looking statements or guidance,
particularly in light of the current economic climate and the
significant volatility, uncertainty and disruption arising in
connection with COVID-19.
Foreign Estimates - clarifying statements as required by ASX
Listing Rule 5.12
The estimates of mineral resource and mineral reserve for Sierra
Gorda Cu-Mo-Au deposit are qualifying foreign estimates under the
ASX Listing Rules and stated by KGHM as being classified in
accordance with National Instrument 43-101 and CIM Standard for
Disclosure (NI 43-101) as at 31 December 2014 and published by KGHM
Polska Miedz on their website on 25 June 2015 (
https://kghm.com/sites/kghm2014/files/mrmr_english.pdf ) . The
mineral resource estimates are reported inclusive of mineral
reserves. These qualifying foreign estimates have not been updated
since 1 January 2015. South32 is representing the mineral resource
and mineral reserve estimates on a 100% basis and in million tonnes
for tonnage whereas information on mineral resource and mineral
reserve published by KGHM Polska Miedz on their website on 25 June
2015 are presented on a 55% basis and in kilo tonnes for tonnage.
South32 Competent Persons converted the mineral resource and
mineral reserve estimate to a 100% basis and in million tonnes by
dividing the tonnage by 550 in discussion with the SGSCM Technical
Team. In discussion with SGSCM Technical Team, contained metals
were also converted using factors provided in footnote c) of Table
2. South32 confirms that no additional estimation or assumptions
were considered in the tonnage conversion to represent the
estimates on a 100% basis. Production depletion to date would
likely result in approximately 18% reduction in the reported
mineral resource and approximately 20% reduction in the reported
mineral reserve for sulphide ore. In addition, approximately 110Mt
of oxide mineral reserves have been stockpiled on surface.
The categories of mineral resource classification used are in
accordance with NI 43-101 and the CIM Standards.
NI 43-101 is a 'qualifying foreign estimate' (Chapter 19, ASX
Listing Rules) and has similar categories of resource
classification as the JORC Code (Appendix 5A, ASX Listing Rules).
Similarly, the categories used for Ore Reserve classification is
similar as the JORC Code but is named differently. Ore Reserve is
referred as mineral reserve, Proved Ore Reserve is referred as
proven mineral reserve and Probable Ore Reserve is referred as
probable mineral reserve under NI 43-101. In accordance with NI
43-101 and CIM Standards, mineral resources are not mineral
reserves and do not have demonstrated economic viability. There is
no certainty that all or any part of mineral resources will be
converted to mineral reserves. Additional drilling may be required
to verify geological and mineralisation continuity, and there is no
certainty that all the inferred resource will be converted to
measured and indicated resource. Quantity and grades are estimates
and are rounded to reflect that the estimates are an
approximation.
South32 considers these estimates to be both material and
relevant to South32 given that Sierra Gorda has the potential to be
a material mining project to South32.
Reliability of estimate: The estimates of mineral resources and
mineral reserves were reported in accordance with NI 43-101 in the
technical report "Mineral Resources and Mineral Reserves Report"
dated 25 June 2015. South32's key technical and operational
personnel conducted site visits as part of the due diligence
process. South32 has been provided information on mining and
processing parameters and operational performance to date.
Sierra Gorda is an operating mine and infrastructure is in place
to run the mine in its stated capacity. All legislative approvals
are in place to enable extraction of the stated mineral
reserves.
To the extent known, the mineral resource estimate was completed
using 1,352 drill holes and the mineral reserves were estimated
assuming an open pit mine with conventional sulphide flotation
facility to produce copper and molybdenum concentrates.
South32 is not in possession of any new information or data
relating to the foreign estimate that materially impacts on the
reliability of the estimates. The assessment of reliability using
criteria in Table 1 of Appendix 5A (JORC Code) is provided in
Annexure A of this announcement.
This announcement contains information in relation to the Sierra
Gorda deposit, financial forecasts and assumptions as provided to
South32 by Sumitomo Metal Mining Co. Ltd and Sumitomo Corporation,
as part of our due diligence with respect to the Transaction. All
material assumptions (including economic) upon which this
information and financial forecasts are based are contained in this
market announcement.
Following completion of the Transaction, it is South32's
intention to conduct a work program to report resources in
accordance with the JORC Code. Additionally, a resource
optimisation study will be conducted to convert the Mineral
Resources to Ore Reserves and report Ore Reserves in accordance
with the JORC Code (2012). The work program is anticipated to be
completed within three years and will be funded using internal cash
reserves.
Cautionary statement
-- The estimates of mineral resources and mineral reserves for
Sierra Gorda are qualifying foreign estimates under the ASX
Listing Rules and are not reported in accordance with the JORC
Code.
-- Competent Persons have not done sufficient work to classify
the qualifying foreign estimates as Mineral Resources and Ore
Reserves in accordance with the JORC Code.
-- It is uncertain, that following evaluation, the foreign estimates
will be able to be reported as Mineral Resources or Ore Reserves
in accordance with the JORC Code.
Competent Persons' statements
In accordance with ASX listing rule 5.12, Matthew Readford, a
Competent Person, employee of South32 and Member (Chartered
Professional) of the Australasian Institute of Mining and
Metallurgy, confirms the information in this market announcement
that relates to the Sierra Gorda NI 43-101 mineral resource foreign
estimate published by KGHM Polska Miedz on their website on 25 June
2015 is an accurate representation of the available data and
studies for Sierra Gorda Mine provided to South32 by Sumitomo Metal
Mining Co. Ltd and Sumitomo Corporation, Joint Venture owners of
Sierra Gorda S.C.M. Matthew Readford has sufficient experience that
is relevant to the style of mineralisation and type of deposit
under consideration and to the activity being undertaken to qualify
as a competent person for the reporting of Mineral Resources in
accordance with the Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves (The JORC Code). Mr
Readford consents to the inclusion in the report of the matters
based on their information in the form and context in which it
appears.
In accordance with ASX listing rule 5.12, Quinton de Klerk, a
Competent Person, employee of Cube Consulting Pty Ltd and Fellow of
the Australasian Institute of Mining and Metallurgy, confirms the
information in this market announcement that relates to the Sierra
Gorda NI 43-101 mineral reserve foreign estimate published by KGHM
Polska Miedz on their public website on 25 June 2015 is an accurate
representation of the available data and studies for Sierra Gorda
Mine provided to South32 by Sumitomo Metal Mining Co. Ltd and
Sumitomo Corporation, Joint Venture owners of Sierra Gorda S.C.M.
Quinton de Klerk has sufficient experience that is relevant to the
style of mineralisation and type of deposit under consideration and
the activity being undertaken to qualify as competent person for
the reporting of Ore Reserves in accordance with the Australasian
Code for Reporting of Exploration Results, Mineral Resources and
Ore Reserves (The JORC Code). Mr de Klerk consents to the inclusion
in the report of the matters based on their information in the form
and context in which it appears.
Table 1: mineral resource and mineral reserve as at 31 December
2014 (55% basis)(a)
Mineral resource Contained metal
==================================================================== ================================
Type Classification Tonnes Cu (%) Au (g/t) Mo (%) Cu (t) Au (kg) Mo (t)
(kt)
---------------- ------- ------ -------- ------ -------------- ------- -------
Sulphide Measured 200,503 0.41 0.07 0.03 818,053 13,835 58,146
Indicated 683,135 0.40 0.06 0.02 2,712,045 40,305 129,796
Measured &
indicated 883,638 0.40 0.06 0.02 3,530,098 54,140 187,942
Inferred 46,036 0.35 0.04 0.01 161,127 1,749 2,762
Total mineral
resource 929,674 0.40 0.06 0.02 3,691,225 55,889 190,704
================ ======= ====== ======== ====== ============== ======= =======
Oxide Measured 13,241 0.38 50,579
Indicated 39,052 0.33 129,262
Measured &
indicated 52,292 0.34 179,841
Inferred 540 0.26 1,403
Total mineral
resource 52,833 0.34 181,244
================ ======= ====== ======== ====== ============== ======= =======
Mineral reserve Contained metal
--------------------------------
Type Classification Tonnes Cu (%) Au (g/t) Mo (%) Cu (t) Au (kg) Mo (t)
(kt)
---------------- ------- ------ -------- ------ -------------- ------- -------
Sulphide Proven 189,135 0.41 0.07 0.03 775,454 13,239 56,741
----------------
Probable 610,669 0.40 0.06 0.02 2,442,674 36,640 122,134
---------------- ------- ------ -------- ------ -------------- ------- -------
Total mineral
reserve 799,804 0.40 0.06 0.02 3,218,128 49,879 178,875
================ ======= ====== ======== ====== ============== ======= =======
Oxide Proven 12,884 0.38 49,300
----------------
Probable 37,378 0.33 124,307
---------------- ------- ------ -------- ------ -------------- ------- -------
Total mineral
reserve 50,263 0.35 173,607
================ ======= ====== ======== ====== ============== ======= =======
Stockpiled ore 24,687 0.33 81,009
----------------
Notes:
a) The mineral resource and mineral reserve estimates represent
the 55% ownership of KGHM as a proportion of the actual total
mineral resource and mineral reserve estimates. Tables may not add
due to rounding.
Table 2: mineral resource and mineral reserve as at 31 December
2014 (100% basis)(a)
Mineral resource Contained metal(c)
==================================================================== ================================
Type Classification Tonnes Cu (%) Au (g/t) Mo (%) Cu (Mt) Au (t) Mo (kt)
(Mt)
---------------- ------ ------ -------- ------ --------------- ------ -------
Sulphide Measured 365 0.41 0.07 0.03 1.49 25.2 105.7
Indicated 1,242 0.40 0.06 0.02 4.93 73.3 236.0
Measured &
indicated 1,607 0.40 0.06 0.02 6.42 98.4 341.7
Inferred 84 0.35 0.04 0.01 0.29 3.2 5.0
Total mineral
resource 1,690 0.40 0.06 0.02 6.71 101.6 346.7
================ ====== ====== ======== ====== =============== ====== =======
Oxide Measured 24 0.38 0.09
Indicated 71 0.33 0.24
Measured &
indicated 95 0.34 0.33
Inferred 1 0.26 0.00
Total mineral
resource 96 0.34 0.33
================ ====== ====== ======== ====== =============== ====== =======
Mineral reserve Contained metal
(c)
--------------------------------
Type Classification Tonnes Cu (%) Au (g/t) Mo (%) Cu (Mt) Au (t) Mo (kt)
(Mt)
---------------- ------ ------ -------- ------ --------------- ------ -------
Sulphide Proven 344 0.41 0.07 0.03 1.41 24.1 103.2
----------------
Probable 1,110 0.40 0.06 0.02 4.44 66.6 222.1
---------------- ------ ------ -------- ------ --------------- ------ -------
Total mineral
reserve 1,454 0.40 0.06 0.02 5.85 90.7 325.2
================ ====== ====== ======== ====== =============== ====== =======
Oxide Proven 23 0.38 0.09
----------------
Probable 68 0.33 0.23
---------------- ------ ------ -------- ------ --------------- ------ -------
Total mineral
reserve 91 0.35 0.32
================ ====== ====== ======== ====== =============== ====== =======
Stockpiled
ore(b) 45 0.33 0.15
----------------
Notes:
a) Tables may not add due to rounding.
b) Stockpiled ore referred to in this announcement is
unclassified and South32 cannot confirm whether the estimate has
been compiled using an appropriate foreign reporting code.
c) The contained metals were converted using the following:
Cu(t) to Cu(Mt) - Dividing by 0.55 million; Au (kg) to Au(t) -
Dividing by 550; and Mo(t) to Mo(kt) - Dividing by 550.
The following document has today been submitted to the National
Storage Mechanism and will shortly be available
for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism :
-- South32 Limited - South32 to acquire a 45% interest in the
Sierra Gorda Copper Mine - Annexures A and B
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