Australia Manganese - Annual Operations Analysis

Australia Manganese consists of the Groote Eylandt Mining Company (GEMCO) located in the Northern Territory. GEMCO is an open-cut mining operation extracting high-grade manganese ore. South32 holds 60% of GEMCO's shares, with the remaining 40% held by Anglo American Plc. During Tropical Cyclone Megan on March 16-17, 2024, GEMCO's operations were severely impacted. The cyclone brought record rainfall and the second strongest gusts in 20 years, causing widespread flooding and severely damaging critical infrastructure. Post-disaster, the company swiftly implemented an operational recovery plan, initiating dewatering of target pits and phased resumption of mining operations. Mining activities are expected to increase rapidly to reach planned inventory levels before the rainy season. Maintaining construction productivity during the rainy season, port operations are planned to resume in Q3 of FY2025, with sales volumes expected to gradually increase in Q4 of FY2025. Due to the suspension of operations in March 2024, the saleable production of Australian manganese ore for FY2024 decreased by 34%, with total production falling to 2.324 million mt. With the implementation of the recovery plan, production for FY2025 is expected to reach 1 million mt, and 3.2 million mt in FY2026. On the cost side, due to the production decline caused by Tropical Cyclone Megan, the operational unit cost for FY2024 increased by 23% to $2.32/mtu. Operational cost guidance for FY2025 has not been provided, as it depends on the H2 operational recovery plan and production achievement. The company expects additional idle capacity and remediation-related costs during the recovery plan implementation in FY2025, which will be excluded as adjustments in underlying earnings. Financially, EBIT for FY2024 fell by 77%, ultimately reaching $61 million. Additionally, $93 million in idle capacity and other remediation costs were recorded, which are excluded from EBIT. Capital expenditure for FY2025 is expected to cover mine maintenance and infrastructure costs, amounting to approximately $125 million. South32's insurers have confirmed that the losses caused by Tropical Cyclone Megan fall under the company's property damage and business interruption insurance coverage. The company will continue to work with insurers to assess the timing and amount of recoveries under these policies.