South32 pulls trigger on $3.3b zinc mine in green agenda

South32 has pulled the trigger on a new zinc-lead-silver mine in the United States and hopes to claw back some of the blow-out in construction costs as industry-wide inflationary pressures ease.

ASX-listed South32 has opted to develop the Taylor deposit in Arizona at a cost of $US2.16 billion ($3.3 billion). The new price tag is higher than a previous estimate of $US1.7 billion due to increases in prices for steel, cement and electrical components.

Hermosa was the first mining project added to the Biden administration initiative known as FAST-411 aimed at bringing new critical minerals mines into production. AP

South32 said Taylor was the first cab off the rank at its Hermosa project, which also has the potential to produce high-grade copper and manganese, part of a lurch toward minerals needed in the energy transition.

Hermosa was the first mining project added to the Biden administration initiative known as FAST-411 aimed at bringing new critical minerals mines into production. South32 boasts that Hermosa is the only advanced project in the US that could supply two federally designated critical minerals.

Barrenjoey analyst Glyn Lawcock estimated total Taylor capital expenditure of $US2.53 billion, including the $US366 million already invested, up 49 per cent on the numbers in the pre-feasibility study.

The call on Taylor came as South32 cancelled a share buyback, which had $US98 million left to run.

South32 reported a 92 per cent drop in net profit to $US53 million for the first half, on revenue down 14 per cent to $US3.9 billion. Its shares fell 2.6 per cent to $3.

The results reflected lower commodity prices and a drop in metallurgical coal production linked to work at the Illawarra operations in NSW, and despite record aluminium production and lower raw material input prices.

South32 is also looking at ways to prevent its Colombian nickel operations falling victim to the supply glut that has left the Australian nickel industry on its knees.

Major milestone

South32 chief executive Graham Kerr said the green light on Taylor was a major milestone aligned with a strategy to reshape the miner’s portfolio toward commodities that are critical for a low-carbon future.

“As one of the few shovel-ready projects in the US, and as industry-wide inflationary pressures begin to ease, we see potential opportunity to optimise the construction costs of Taylor,” he said.

The mine is expected to be producing zinc, silver and lead in the second half of 2026-27 and up to 290,000 tonnes a year of zinc equivalent when at full capacity.

South32 said global zinc demand growth was expected to exceed global production by about 3 million tonnes to 2031 and that should lead to higher zinc prices as Taylor ramped up to nameplate capacity.

“As the first phase of a regional scale opportunity at Hermosa, Taylor’s infrastructure including dewatering, power, roads and site facilities, will unlock value for future growth options,” Mr Kerr said.

South32 earlier this week agreed to sell its 50 per cent stake in the Eagles Downs metallurgical coal project in Queensland’s Bowen Basin to Stanmore Resources for $US15 million in cash and up to $US120 million in other payments and royalties depending on future production volumes.