Headline results: bigger profits, higher dividend, more buy-backs
South32 has delivered a strong first half (H1 FY26) against a mixed commodity backdrop. Underlying earnings rose 16% to US$435 million, Underlying EBITDA increased 9% to US$1,107 million with a 28.2% margin, and basic EPS grew 29% to 10.3 US cents. The Board declared an interim dividend of US 3.9 cents per share (fully-franked) and lifted the capital management programme by US$100 million to US$2.6 billion – with US$209 million still to return to shareholders by 26 February 2027.
Production and operating unit cost guidance remain unchanged across operated assets, underscoring steady operating discipline. The balance sheet is robust, finishing the period with just US$25 million of net debt.
| Key metric | H1 FY26 | H1 FY25 | % change |
|---|---|---|---|
| Revenue (continuing operations) | US$2,809m | US$2,884m | (3%) |
| Underlying revenue | US$4,008m | US$3,850m | 4% |
| Underlying EBITDA | US$1,107m | US$1,018m | 9% |
| Underlying earnings | US$435m | US$375m | 16% |
| Basic EPS | 10.3 US cents | 8.0 US cents | 29% |
| Dividend per share | 3.9 US cents | 3.4 US cents | 15% |
| ROIC | 11.3% | 9.5% | +1.8pp |
| Net cash/(debt) | (US$25m) | US$123m | n/a |
| EAI distributions | US$240m | US$23m | n/m |
| Free cash flow (excl. EAIs) | (US$183m) | (US$116m) | outflow |
Definitions: “Underlying” adjusts for items that don’t reflect day-to-day operations. EBITDA is earnings before interest, tax, depreciation and amortisation. EAIs are equity accounted investments, notably Sierra Gorda and manganese JVs.
Base metals driving profits: Sierra Gorda and Cannington stand out
This half was all about higher copper and precious metals prices flowing through to earnings. Sierra Gorda posted Underlying EBITDA of US$393 million (margin 68%) on largely flat payable copper equivalent volumes of 47.0 kt, with commodity prices doing the heavy lifting. A feasibility study for a fourth grinding line – which could lift plant throughput by ~20% to ~58 Mtpa (100% basis) – is nearing completion, with a potential joint final investment decision targeted for mid CY26. An exploration target of 1.1–2.9 Bt at ~0.45–0.48% total copper at Catabela Northeast also points to potential life extension.
Cannington’s Underlying EBITDA rose to US$211 million (margin 53%) despite lower planned grades, thanks to stronger silver, lead and zinc prices and lower costs. Importantly, the underground Ore Reserve increased by 3 Mt to 13 Mt, extending reserve life by around two years to FY33, with additional capex of approximately US$65–80 million expected across FY27–FY28 to support ventilation and electrical upgrades. Study work on an open pit option will progress to pre-feasibility in CY26.
Why it matters: South32’s pivot to base and precious metals is gaining traction. Price leverage at Sierra Gorda and reserve life gains at Cannington provide earnings resilience and visibility, which can help offset alumina market softness.
Hermosa update: stepping up spend to build Taylor and unlock Peake copper
Growth capital expenditure at Hermosa hit US$338 million in H1 as South32 advanced shaft sinking and surface infrastructure for Taylor (zinc-lead-silver) and completed the exploration decline at Clark (battery-grade manganese). FY26 growth capex guidance remains US$750 million, with a milestone and capex assessment due in H2 FY26 as more packages are priced.
Exploration at the nearby Peake copper target delivered further high-grade results, and work continues in H2 FY26 to assess potential copper production leveraging Taylor’s infrastructure.
My take: Hermosa is a multi-horizon growth platform. Near-term spend weighs on free cash flow, but the strategic rationale is clear – scale exposure to transition metals, optionality across deposits, and infrastructure synergies.
Aluminium: Hillside solid, Mozal winding down, alumina prices bite
Hillside Aluminium delivered a much better half: Underlying EBIT increased to US$171 million, helped by a 7% rise in realised aluminium prices and lower alumina input costs, partly offset by a stronger rand and energy indexation. Production guidance is unchanged at 720 kt.
Mozal Aluminium will move to care and maintenance around 15 March 2026 after failing to secure sufficient and affordable power. H1 EBIT rose to US$58 million on higher aluminium prices and lower maintenance, but unit costs rose and management recognised US$54 million of significant items linked to the wind-down. Expect a drawdown of finished goods inventory to support H2 cash generation.
Alumina was the clear pressure point. Worsley’s Underlying EBIT fell to US$70 million as realised prices dropped 22%; Brazil Alumina swung to a small loss with a 37% price drop. That’s the flip side of today’s market – vertical integration helps, but price is king.
Cash flow, balance sheet and shareholder returns
- Free cash flow from operations excluding EAIs was an outflow of US$183 million, reflecting US$338 million of Hermosa growth capex and a US$130 million working capital build (higher prices and timing of Mozal sales).
- Distributions from EAIs were a hefty US$240 million, including a record US$180 million from Sierra Gorda and US$60 million from manganese (insurance recoveries finalised at Australia Manganese).
- Net debt closed at US$25 million, with an undrawn US$1.4 billion sustainability-linked RCF (maturing December 2028) and investment-grade ratings reaffirmed.
- South32 returned US$152 million to shareholders in H1 (US$117 million dividends, US$35 million buy-backs). The interim dividend is US 3.9 cents per share (record date 6 March 2026; payment 2 April 2026).
Opinion: The small net debt position gives South32 room to keep building Hermosa while maintaining the dividend and buy-back. The extra US$100 million for the programme – and US$209 million left to return by early 2027 – signals confidence.
Outlook: steady guidance, disciplined costs, some moving parts
- FY26 production and operating unit cost guidance are unchanged across operated assets.
- Brazil Aluminium (non-operated) guidance reduced to 135 kt for FY26 and 140 kt for FY27 due to stability and ramp-up measures.
- Sierra Gorda guidance unchanged with potential upside if strong by-product volumes persist in H2.
- Depreciation and amortisation guidance trimmed to US$720 million for FY26, reflecting updated mine life assumptions.
Risks to watch: the Mozal transition, alumina price weakness, and inflation in producer currencies. Also note operational GHG emissions rose 16% due to drought-driven power mix at Mozal – something the group will want to reverse as the care-and-maintenance process completes.
What this means for investors
Overall, this is a positive print. The numbers show price leverage to copper, silver and aluminium, stronger margins at key assets, and healthy returns – all while funding a big growth agenda at Hermosa. The dividend uplift and enlarged buy-back should go down well.
On the flip side, alumina price weakness hit Worsley and Brazil, and Mozal’s wind-down is regrettable, albeit being managed carefully. Free cash flow will be second-half weighted as Mozal inventory is sold down and Hermosa milestones progress.
Bottom line: South32 is reshaping into a higher-margin, base-metals-led portfolio with visible growth options. If copper and precious metals stay supportive and the Sierra Gorda expansion advances on plan, the medium-term investment case gets stronger.
Dates and details investors need to know
- Interim dividend: US 3.9 cents per share (fully-franked – Australian tax credits attached).
- Record date: 6 March 2026. Payment date: 2 April 2026.
- Capital management programme: increased to US$2.6 billion; US$209 million remains to be returned by 26 February 2027.
Safety and culture: trending the right way
Safety improved markedly: LTIF down 36% to 0.9 and TRIF down 24% to 2.8, with a stronger reporting culture indicated by higher significant hazard frequency. Inclusion metrics edged up too, with women in leadership at 23.7% and workforce at 24.1% after portfolio changes.
These aren’t just box-tickers. Safer, more inclusive operations tend to be more predictable, which feeds margins, guidance credibility and, ultimately, valuation.
