18 June 2018 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 ARIZONA MINING IN AGREED ALL CASH OFFER South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) will hold a conference call at 7:30am Australian Western Standard Time on 18 June 2018 to discuss the agreed all cash offer for Arizona Mining, the details of which are as follows: Conference ID: 538881 Australia: 1 800 558 698 Singapore: 800 101 2785 South Africa: 0800 999 976 United Kingdom: 0800 051 8245 United States: (855) 881 1339 International: +612 9007 3187 A presentation is attached. Following the conference call a recording will be available on the South32 website (https://www.south32.net/investors-media/reports-and-presentations). About South32 South32 is a globally diversified mining and metals company with high quality operations in Australia, Southern Africa and South America. 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 have a simple strategy to maximise the potential of our assets and shareholder returns by optimising our existing operations, unlocking their potential and identifying new opportunities to compete for capital. FURTHER INFORMATION INVESTOR RELATIONS Alex Volante M +61 403 328 408 M +44 7468 353 005 E Alex.Volante@south32.net MEDIA RELATIONS James Clothier T +61 8 9324 9697 M +61 413 391 031 E James.Clothier@south32.net Tom Gallop T +61 8 9324 9030 M +61 439 353 948 E Tom.Gallop@south32.net Jenny White T +44 20 7798 1773 M +44 798 388 7467 E Jenny.White@south32.net Further information on South32 can be found at www.south32.net. JSE Sponsor: UBS South Africa (Pty) Ltd 18 June 2018 Registered Office: Level 35, 108 St Georges Terrace, Perth Western Australia 6000, Australia ABN 84 093 732 597 Registered in Australia
Photos to be sourced from Lion at appropriate time South32 to acquire Arizona Mining in agreed all cash offer 18 June 2018
Important notices This presentation should be read in conjunction with the Financial results and outlook Half year ended 31 December 2017 announcement released on 15 February 2018, which is available on South32 s website (www.south32.net). FORWARD-LOOKING STATEMENTS This presentation may contain 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 presentation, 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 presentation. 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. NON-IFRS FINANCIAL INFORMATION This presentation may include certain non-ifrs financial measures, including Underlying earnings, Underlying EBIT and Underlying EBITDA, Basic Underlying earnings per share, Underlying effective tax rate, Underlying EBIT margin, Underlying EBITDA margin, Underlying return on invested capital, Free cash flow, net debt, net cash, net operating assets and ROIC. These measures are used internally by management to assess the performance of our business, make decisions on the allocation of our resources and assess operational management. Non- IFRS measures have not been subject to audit or review and should not be considered as an indication of or alternative to an IFRS measure of profitability, financial performance or liquidity. NO OFFER OF SECURITIES Nothing in this presentation should be read or understood as an offer or recommendation to buy or sell South32 securities, or be treated or relied upon as a recommendation or advice by South32. RELIANCE ON THIRD PARTY INFORMATION Any information contained in this presentation that has been derived from publicly available sources (or views based on such information) has not been independently verified. The South32 Group does not make any representation or warranty about the accuracy, completeness or reliability of the information. This presentation should not be relied upon as a recommendation or forecast by South32. NO FINANCIAL OR INVESTMENT ADVICE SOUTH AFRICA South32 does not provide any financial or investment 'advice' as that term is defined in the South African Financial Advisory and Intermediary Services Act, 37 of 2002, and we strongly recommend that you seek professional advice. MINERAL RESOURCES AND ORE RESERVES The information in this announcement that relates to the Mineral Resource estimates and Preliminary Economic Assessment (PEA) of Hermosa Project (Taylor and Central Deposit) was declared by Arizona Mining Inc Arizona Mining by filing National instrument 43-101 Technical Report on SEDAR (www.sedar.com) dated 29 November 2016, 13 April 2017 and 16 January 2018 in accordance with National Instrument 43-101 as required by Canadian securities regulatory authorities. Quantities are stated in short tons unless otherwise stated. Commodity weights of measure are in ounces per short ton (oz/ton) or per cent (%) unless stated otherwise. This announcement contains information in relation to the Hermosa Project, and financial forecasts based on this information, as published by Arizona Mining in its Updated Preliminary Economic Assessment released 16 January 2018 on SEDAR (www.sedar.com). All material assumptions (including economic) upon which the this information and financial forecasts are based are contained in the Updated Preliminary Economic Assessment dated 16 January 2018. For further detail, please refer to the market announcement by South32 and Arizona Mining South32 to acquire Arizona Mining in agreed all cash offer dated 18 June 2018. The information that relates to estimates of Mineral Resources for the Hermosa Project are qualifying foreign estimates under ASX Listing Rules and reference should be had to the clarifying statement on Mineral Resources in the market announcement South32 to acquire Arizona Mining in agreed all cash offer dated 18 June 2018, in accordance with ASX Listing Rule 5.12. 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. South32 confirms that the information contained in the clarifying statement in the 18 June 2018 market announcement continues to apply and has not materially changed. The estimates of Mineral Resources are not reported in accordance with the JORC Code. Competent persons have not done sufficient work to classify the foreign estimates as Mineral Resources in accordance with JORC Code. It is uncertain that following evaluation and further exploration that the foreign estimates will be able to be reported as Mineral Resources or Ore Reserves in accordance with the JORC Code. The information in this announcement that relates to Reserve Life of Cannington was declared as part of South32's Annual Resource and Reserve declaration in the FY17 Annual Report (www.south32.net) issued on 14 September 2017 and prepared by Competent Persons in accordance with the requirements of the JORC Code. South32 confirms that it is not aware of any new information or data that materially affects the information included in the original announcement. All material assumptions and technical parameters underpinning the estimates in the relevant market announcement continue to apply and have not materially changed. South32 confirms that the form and context in which the Competent Person s findings are presented have not been materially modified from the original market announcement. SLIDE 2
Transaction highlights Board approved, fully funded cash offer for Arizona Mining of C$6.20 per share 50% offer premium Major shareholder and active participant in Arizona Mining over past 18 months Cumulative investment US$1.4B for 100% High grade base metals resource open at depth and laterally 101Mtons @ 10.4% zinc equivalent 1 Potential for low cost, long life operation with clear development pathway Attractive jurisdiction with good access to infrastructure and regional prospectivity Unchanged capital management strategy and commitment to complete US$1B program SLIDE 3
Transaction overview US$1.3B for the shares, warrants and options we don t already own in Arizona Mining Inc. (TSX:AZ) 2 Taylor development project Central deposit optionality Large and highly prospective tenement package Date Share purchase Price per share (C$) Investment (US$M) April 2017 15% investment via private placement 2.45 81 May 2017 to May 2018 June 2018 Further 2% acquired via forward instrument and top-up rights Offer to acquire all shares not already owned by South32 (~83%) Cash settlement of outstanding warrants and options 3.49 23 6.20 5.03 3 1,341 Cumulative investment of US$1.4B at a VWAP 4 of C$5.54 per share Discount to Arizona Mining s Updated PEA valuation January 2018 5 SLIDE 4
Key terms and transaction timeline Consideration Structure Conditions Other Timeline C$6.20 per share in cash 50% premium based on 20-day volume weighted average price 6 US$1.3B 2 investment funded from cash on hand Entered into an arrangement designed to manage foreign exchange rate exposure associated with the transaction Acquisition via Plan of Arrangement (similar to an Australian Scheme of Arrangement) Arizona Mining shareholder approval (66.67% of total votes cast and over 50% of votes cast excluding shares held by South32 and any other persons required to be excluded) Court approvals Unanimously approved by Arizona Mining s board of directors entitled to vote Arizona Mining s officers and board of directors, collectively representing 34% of common shares outstanding, have entered into voting support agreements Non-solicitation, notification and matching rights Break fee of C$67M payable to South32 under certain circumstances South32 will provide Arizona Mining with a working capital facility of up to C$70M Circular expected to be mailed to Arizona Mining shareholders in July 2018 Expected to close September 2018 quarter SLIDE 5
Hermosa Project location South32 s Americas footprint Trilogy Metals Arctic Bornite Attractive mining jurisdiction with access to skilled labour Proximate to key infrastructure including energy, road and rail Positioned for Atlantic and Pacific customer markets Arizona Mining Hermosa Phoenix Silver Bull Resources Sierra Mojada San Diego Tuscon United States Internal option Puerto Libertador Inca Minerals Riqueza AusQuest Chololo Los Otros Cerro de Fierro Parcoy Cerro Matoso Brazil Alumina Hermosa Project Guaymas Corpus Christi San Antonio Project Mexico Concept Early Stage Copper Polymetallic Rail Port Advanced Exploration South32 operation SLIDE 6
Hermosa Project history Project is well advanced Resource 1,8 has increased more than 200% in the past 2 years and remains open at depth and laterally State permits received Pathway to development identified Taylor resource 7 Maiden resource 8 31Mtons 133% to 72Mtons 8 39% to 101Mtons 1 @ 10.4% ZnEq 9 2006: Acquired property 2007-2016: Exploratory drilling focussed on Central deposit until attention shifts to Taylor in August 2014 November 2016: Taylor resource update April 2017: PEA released (US$1.3B NPV) 10 January 2018: Three state permits received and Updated PEA released (US$2.0B NPV) 5 Maintain momentum in FY19 by: Commencing exploration decline Advancing studies Obtaining permits October 2016: Initial South32 site visit May 2017: Initial 15% investment made by South32 and operations committee participation begins October 2017: South32 board nominee appointed May 2018: Additional 2% stake acquired via forward contract, taking South32 holding to 17% Continuing to drill high grade resource extensions Commencing exploration on unpatented land FY17 FY18 SLIDE 7
Hermosa Project overview A Taylor deposit Zinc-lead-silver sulphide deposit within patented area Known resource and development pathway PEA completed January 2018 (project IRR 48%, pre-production capital US$519M) 5 PEA assumed initial 8 years of production on patented land Hermosa Project B Central deposit Silver-manganese-zinc oxide deposit Known resource with development subject to full feasibility Taylor and Central deposits A B C C Regional prospectivity Drilling to date has focussed on small patented area Large unpatented holdings with significant exploration potential Patented area - 224 hectares (Arizona Mining owns surface and mineral rights) Unpatented area 8,296 hectares (Arizona Mining owns mineral rights only, surface rights held by Federal government) SLIDE 8
US$/t (net of credits) Taylor deposit in a global context Cannington Taylor PEA Resource Grade in ZnEq Zinc cash cost curve (induced CY25) Taylor resource 1 versus peers 4,000 25% Existing operations 3,000 Consensus long term zinc 11 20% Dairi Red Dog Development projects Taylor deposit 2,000 1,000 15% Cannington Dugald River Rampura Agucha McArthur - 10% 2016 2017 2018 Resource open at depth and laterally Ozernoye Selwyn (1,000) (2,000) (3,000) Source: South32 industry analysis 5% San Cristobal Penasquito Mehdiabad % - 5 10 15 20 25 30 35 Most Recent Resource Size in Mt ZnEq Source: South32 industry analysis Lowest inducement cost of identified greenfield zinc-lead projects PEA indicates first quartile zinc cash costs Current Taylor resource already supports a long life project Untested regional potential SLIDE 9
Taylor deposit resource Taylor deposit resource statement 12 Taylor deposit resource outline Classification Mtons Zn (%) Pb (%) Ag (oz/t) ZnEq (%) Measured 15.2 4.0 4.0 1.6 9.6 Indicated 85.8 4.2 4.3 2.2 10.5 Measured and Indicated 101.0 4.1 4.3 2.1 10.4 Open Inferred 43.6 3.9 4.8 3.4 11.9 Total 144.6 4.1 4.4 2.5 10.8 Open Taylor deposit conceptual plan Looking north-east Open Open Central deposit option Open Open Open Legend ZnEq (%) < 5% 5 6% 6 7% 7 8% 8 10% 10 20% > 20% SLIDE 10
Taylor deposit compares favourably to Cannington Taylor deposit (PEA) 12 Cannington Well placed to progress and optimise Taylor s development Mining method Open stoping Open stoping Backfill Paste Paste and rockfill Similar scope to Cannington Technical involvement with project since May 2017 Access Products Twin decline and hoisting shaft Lead-silver concentrate and zinc concentrate Decline and hoisting shaft Lead-silver concentrate and zinc concentrate Developed own resource model Retaining project team Logistics Truck or rail to port Rail to port Financial strength to consider full range of development scenarios Average mill throughput Mine life 3.3Mtonnes pa 13 3.2Mtonnes pa 14 29 years 21 years since operation commenced Assess throughput rate expansion potential Incorporate high grade extensions Test regional potential SLIDE 11
Central deposit and Hermosa regional prospectivity Central deposit Previously identified development pathway subject to further study Refinery configuration, metallurgy and recoveries remain a key focus area An attractive long-term development option Central deposit resource statement 12 Classification Mtons Zn (%) Ag (oz/t) Mn (%) Measured 21.8 1.9 3.3 9.2 Indicated 41.7 2.3 1.7 9.8 Measured and indicated 63.5 2.2 2.3 9.6 Inferred 1.8 2.6 1.6 7.4 Total 65.3 2.2 2.2 9.5 Regional prospectivity Hermosa Project located within the Laramide Belt, a copper porphyry belt extending from Nevada to Mexico that hosts a range of world-class base metals deposits 8,296 hectares of unpatented claims are under-explored pending access approval Hermosa Project regional targets Porphyry related systems Patented claims Polymetallic vein & replacement systems Unpatented claims SLIDE 12
Maximise cash flow Cash flow priorities Transaction funding Capital Management Framework is unchanged since listing ROIC Competition for excess capital - Investment in the business - Acquisitions - Greenfield exploration - Share buy-backs - Special dividends Committed to US$1B capital management program US$608M returned to 15 June 2018 Scheduled for completion in April 2019 Distribute a minimum 40% of Underlying earnings as ordinary dividends in each six month period Transaction funded from cash on hand US$2.8B in cash equivalents as at 31 March 2018 15 Maintain safe and reliable operations and an investment grade credit rating through the cycle Investment grade credit rating Balance sheet will remain strong following completion of Arizona Mining and Eagle Downs transactions SLIDE 13
Transaction summary Board approved, fully funded cash offer for Arizona Mining of C$6.20 per share 50% offer premium Major shareholder and active participant in Arizona Mining over past 18 months Cumulative investment US$1.4B for 100% High grade base metals resource open at depth and laterally 101Mtons @ 10.4% zinc equivalent 1 Potential for low cost, long life operation with clear development pathway Attractive jurisdiction with good access to infrastructure and regional prospectivity Unchanged capital management strategy and commitment to complete US$1B program SLIDE 14
Supplementary information
Previous Mineral Resource estimates Taylor deposit (29 November 2016) Classification Mtons Zn (%) Pb (%) Cu (%) Ag (oz/t) ZnEq (%) Indicated Mineral Resource 31.1 4.7 4.4 0.1 1.8 10.9 Inferred Mineral Resource 82.7 4.2 4.7 0.2 2.2 11.1 Source: Filed by Arizona Mining Inc on SEDAR (www.sedar.com) on 29 November 2016. Taylor deposit (13 April 2017) Classification Mtons Zn (%) Pb (%) Ag (oz/t) ZnEq (%) Measured Mineral Resources 8.6 4.2 4.0 1.6 9.7 Indicated Mineral Resources 63.8 4.5 4.4 1.9 10.6 Measured and Indicated Mineral Resources 72.5 4.4 4.4 1.8 10.5 Inferred Mineral Resources 38.6 4.4 4.2 3.1 11.6 Source: Filed by Arizona Mining Inc on SEDAR (www.sedar.com) on 13 April 2017. SLIDE 16
Footnotes Notes: 1. Refer to slide 10 for estimates of Mineral Resources for the Taylor deposit, and the Mineral Resources and Ore Reserves section of the Important Notices on slide 2 for further information in respect of the foreign estimates and Arizona Mining s Mineral Resource estimates and Updated Preliminary Economic Assessment released 16 January 2018 https://www.arizonamining.com/news/index.php?content_id=443. Also refer to the market announcement by South32 and Arizona Mining South32 to acquire Arizona Mining in agreed all cash offer dated 18 June 2018 for Mineral Resources - clarifying statements. 2. Represents 313M shares outstanding plus 32M options and warrants, less 53M shares already owned by South32. 3. Represents weighted average purchase price to cash settle options and warrants (being the difference between the C$6.20 offer price and the strike price for the options and warrants). 4. Represents volume weighted average price. 5. Refers to Net Present Value and Internal Rate of Return from Arizona Mining s Updated Preliminary Economic Assessment released 16 January 2018 https://www.arizonamining.com/news/index.php?content_id=443. Refer to the Mineral Resources and Ore Reserves section of the Important Notices on slide 2, and the market announcement by South32 and Arizona Mining South32 to acquire Arizona Mining in agreed all cash offer dated 18 June 2018 for Mineral Resources - clarifying statement. 6. Volume weighted average price based on Toronto Stock Exchange trading only for 20 trading days ending 15 June 2018. 7. Taylor deposit Measured and Indicated Mineral Resources. Refer to the Mineral Resources and Ore Reserves section of the Important Notices on slide 2, and the market announcement by South32 and Arizona Mining South32 to acquire Arizona Mining in agreed all cash offer dated 18 June 2018 for Mineral Resources - clarifying statement. 8. Refer to slide 16 for estimates of Mineral Resources for the Taylor deposit, the important notices on slide 2 in respect of the foreign estimates and Arizona Mining s Resource estimate and Updated Preliminary Economic Assessment released 16 January 2018 https://www.arizonamining.com/news/index.php?content_id=443. 9. ZnEq (%) is zinc equivalent which accounts for combined value of Zinc, Lead and Silver. Metals are converted to ZnEq using long term consensus metal prices and relative metallurgical recoveries. 10. Refer to the Mineral Resources and Ore Reserves section of the Important Notices on slide 2 and the Preliminary Economic Assessment released by Arizona Mining Inc. on 13 April 2017 http://www.arizonamining.com/_resources/technical-reports/techreportpeataylordeposit.pdf. 11. Based on the average of 18 broker estimates (Barclays, BMO Capital, BoAML, Canaccord, Citi, Credit Suisse, Deutsche Bank, HSBC, Investec, Macquarie, Morgan Stanley, National Bank, RBC, Raymond James, Scotia Bank, SMBC, TD Securities and UBS). 12. The estimates of Mineral Resources for Hermosa Project (Taylor and Central deposits) are available in the Updated Preliminary Economic Assessment released by Arizona Mining Inc. on 16 January 2018 https://www.arizonamining.com/news/index.php?content_id=443. 13. 1 US ton = 0.907 metric tonnes. Refer to the Updated Preliminary Economic Assessment released by Arizona Mining Inc. on 16 January 2018 and the Mineral Resources and Ore Reserves section of the Important Notices on slide 2 https://www.arizonamining.com/news/index.php?content_id=443. 14. Cannington average mill throughput FY10 to FY17. 15. Cash equivalents number is unaudited. SLIDE 17
Footnote SLIDE 18