Key Highlights

• Underlying EBITDA was US$2.46 billion, up 28 per cent, at a Margin of about 31 per cent.

• Underlying Earnings were US$1.03 billion, up 55 per cent.

• Profit after tax attributable to members was US$1,087 million, up US$874 million from the prior year.

• Cash flow from operations was US$610 million, up US$352 million, and that was after US$711 million was invested at Hermosa, the company's growth project in the United States.

Why is South32 (ASX:S32) selling its aluminium Business just as base metals are driving its best earnings in years? The answer, based on the company's FY26 disclosures, is that management is steering the group towards copper, zinc, lead and silver, funding the shift from Cash Flow and from the proceeds of a proposed sale to Alcoa. The result, for the year to 30 June 2026, shows how much a more encouraging Commodity price backdrop helped, and how much work remains to deliver the growth projects.

The FY26 result

All figures are in US dollars. Underlying EBITDA was US$2.46 billion, up 28 per cent, at a margin of about 31 per cent. Underlying earnings were US$1.03 billion, up 55 per cent. Profit after tax attributable to members was US$1,087 million, up US$874 million from the prior year.

Cash flow from operations was US$610 million, up US$352 million, and that was after US$711 million was invested at Hermosa, the company's growth project in the United States.

Dividends and Capital management

The total ordinary Dividend for the year was 9.3 US cents per share, up 55 per cent, fully franked. The final dividend of 5.4 US cents was worth about US$242 million. South32 returned US$327 million to shareholders during FY26, and extended its capital management programme to September 2027, with US$209 million still to be returned at the time of the result.

Franking credits only benefit shareholders who can use them, so the after-tax value of the payout will differ between investors.

What South32 does

South32 is a diversified metals and Mining group. Its portfolio includes Cannington in Queensland, a silver, lead and zinc mine; a 45 per cent interest in the Sierra Gorda copper mine in Chile, operated with a partner; the Hermosa project in Arizona, which includes the Taylor zinc-lead-silver deposit under construction and the adjacent Clark manganese resource; manganese operations; and an aluminium value chain that includes bauxite, alumina and smelting assets.

Earnings therefore depend heavily on commodity prices, particularly copper, zinc, silver, aluminium and manganese, as well as on currencies and operating costs. In FY26, management credited price tailwinds, along with encouraging performance at Cannington and Sierra Gorda, for the improvement.

The aluminium sale

On 1 July 2026, South32 announced a binding but conditional agreement to sell its aluminium value chain to Alcoa. The implied Enterprise value is up to US$5.6 billion, and Alcoa would also assume about US$1.1 billion of rehabilitation provisions. Completion is expected in the second half of FY27.

For South32, the transaction would remove a large, capital-intensive and energy-sensitive business and leave a portfolio more concentrated in metals associated with electrification and infrastructure. A trade publication headline on the aluminium segment suggested the Hillside smelter delivered, Brazil recovered and Worsley took a price hit during the year, which illustrates the mixed performance that the sale would take off the table.

The deal is not complete, however. It remains subject to conditions, and the timetable and final terms could change. The company also said it would review its climate targets following the sale, which is a reminder that the transaction affects its emissions profile as well as its earnings mix.

Growth projects

Sierra Gorda is the most immediate lever. Its ore reserve rose 61 per cent to 1.1 billion tonnes after infill drilling, and a fourth grinding line has been sanctioned, expected to lift production by around 30 per cent in FY31. In the nearer term, the company guided to roughly 5 per cent production growth at Sierra Gorda in FY27 and a further 2 per cent in FY28, supported by higher planned copper grades.

At Hermosa, construction of the Taylor project is advancing, with first production expected in the second half of FY28. Exploration results at Peake, next to Hermosa, point to possible future copper production and mine life extension, though that remains early-stage. Cannington's zinc-equivalent production is expected to stay broadly steady.

Sector conditions and competition

Copper has attracted investor attention because of its role in electrification and data centre build-outs, while zinc, lead and silver are tied to industrial Demand and, in silver's case, Investment flows. South32 competes with much larger diversified miners for capital and projects, and its scale in copper is modest by comparison. Growth through Sierra Gorda and Hermosa is therefore as much about building a more focused portfolio as about matching larger rivals.

Material risks and upcoming developments

The main risks are fairly clear. Commodity prices can reverse, and South32's FY26 gains leaned on favourable prices. The Alcoa transaction is conditional and not yet complete. Hermosa and Sierra Gorda require continued investment and careful execution, and project costs and timelines can slip. Operating in Chile, Australia and the United States also exposes the group to regulatory and permitting risk.

Items to watch include progress on the Alcoa sale through the second half of FY27, quarterly production updates, the remaining capital management programme, construction milestones at Taylor and the review of climate targets.

In short, South32's FY26 result shows a business benefiting from base metals and trying to lock that in by reshaping itself. Whether the reshaping delivers lasting value depends on execution and on prices that the company does not control.