Tribeca’s resources fund manager Ben Cleary said the write-offs amid acute demand for such commodities will dampen enthusiasm for development in the sector. “The current round of capex blowouts we are seeing will destroy boardroom confidence in committing to future projects,” said Mr Cleary.
“This is a perverse outcome because the global economy is very bullish for commodities and supply shortages for key commodities will only become more pronounced.”
Last week, WesternAustralia nickel producer IGO shockedthe market with a near $1 billion hit when it reduced the value of two nickel mines it bought for$1.3 billion just a year ago.Lake Resources revealed last monthits flagship lithium project will be delayed by six years and cost $540 million more.
Hastings Technology Metals admitted in May that costs at itsYangibana rare earths project will jump by 40 per centto $948 million. BCI’s salt and potash project in WA has suffered a $500 million blowout, and Wesfarmers’ Mt Holland lithium project will cost $300 million more than anticipated.
Together, those are worth about $2.9 billion this year alone. But when Oz Minerals’ West Musgrave nickel project (now owned by BHP) and Rio Tinto’s Oyu Tolgoi project (where the original estimates of $US5.3 billion has blown out to more than $US7 billion) are included, the final price tag is likely to come in at just over $6 billion.
The troubledSnowy 2.0 pumped hydro storageproject is expected to suffer a similar fate. Capital expenditure costs are destined to rise well above the previous forecast of $5.9 billion to around $10 billion.
Surging costs for capital works linked to the energy transition has come just as minerals such as lithium, zinc, rare earths,graphiteand nickel have taken on greater importance for the purposes of decarbonisation efforts and national security. Rare earths and minerals are crucial for making batteries, solar panels and defence equipment.
‘Disappointed by the delays’
South32’s Hermosa zinc, silver, lead and manganese project in Arizona is the first ASX-listed mining company to get a critical minerals project accepted into the US government’s new approvals fast-track program.
The US is seeking to turbocharge critical mineral mining on its own shores as part of a broader move to curb China’s influence over the sector.
“The Hermosa project has the potential to sustainably produce commodities critical for a low-carbon future, from multiple development options, for decades to come,” South32 chief executive Graham Kerr said.
“We are disappointed by the delays resulting from the impact of COVID, the significant dewatering requirements and current inflationary market conditions.”
Mr Kerr, who stands by the project, said the other major deposit on the Hermosa site – the Clark zinc-manganese-silver resource – could supply battery-grade manganese for the electric vehicle supply chain in North America and further study is underway.
South32 told the market on Monday that the total value of the Hermosa project was now $US1 billion, comprising the discounted $US482 million valuation for the Taylor deposit, the Clark deposit and regional exploration land package were unchanged at $US519 million.
The miner will now split up the Hermosa project, which it bought in 2018, to develop the deposits individually.
South32 is a globally diversified mining and metals company that produces commodities including bauxite, alumina, aluminium, copper, silver, lead, zinc, nickel, metallurgical coal and manganese from Australia, Southern Africa and South America. The Hermosa project is one of two development options in North America.
The impairment overshadowed South32 unveiling three annual production records in aluminium, copper and manganese in its quarterly results on Monday.
Kaan Peker, an analyst at RBC, said the results were “mixed” but “South32 reported strong rebound in the fourth quarter of production. All key commodities or segments except alumina beat or were in-line.”
South32 told the market copper production increased by 9 per cent in the June quarter, underpinned by a return to stable operations. Aluminium production increased by 14 per cent in the quarter, but alumina production declined 4 per cent in the 2023 financial year due to temporary outages in the June quarter.
