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South32 provides Hermosa Project update

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Global Mining Review,

South32 Ltd has provided an update following the completion of a pre-feasibility study (PFS) for the Taylor Deposit, which is the first development option at the company’s 100% owned Hermosa project located in Arizona, USA.

The PFS results support Taylor’s potential to be the first development of a multi-decade operation, establishing Hermosa as a globally significant producer of metals critical to a low carbon future, delivering attractive returns over multiple stages. An initial development case demonstrates a sustainable, highly productive zinc-lead-silver underground mine and conventional process plant, in the first quartile of the industry cost curve.

The Taylor Deposit will progress to a feasibility study, including work streams designed to unlock additional value by optimising operating and capital costs, extending the life of the resource and further assessing options identified to target a carbon neutral operation. Completion of the feasibility study and a final investment decision to construct Taylor are expected in mid CY23.

Separately, a scoping study for the spatially linked Clark Deposit has confirmed the potential for a separate, integrated underground mining operation producing battery-grade manganese, as well as zinc and silver. Clark has the potential to underpin a second development stage at Hermosa, with future studies to consider the opportunity to integrate its development with Taylor, potentially unlocking further operating and capital efficiencies.

While exploration drilling to date has been focused on the Taylor and Clark Deposits, South32 has continued to complete surface geophysics, soil sampling and other exploration programmes across its land package. This work has resulted in the definition of a highly prospective corridor including Taylor and Clark as well as the Peake and Flux exploration targets, which will be prioritised for drill testing in CY22.

South32 CEO, Graham Kerr, said: “The Taylor Deposit provides an important first development option for our Hermosa project in Arizona, USA. The project has the potential to sustainably produce the metals critical for a low carbon future across multiple decades from different deposits.

“Completing the PFS for the Taylor Deposit is an important milestone that demonstrates its potential to be a globally-significant and sustainable producer of base and precious metals in the industry’s first cost quartile. Beyond Taylor, Clark offers the potential to realise further value from our investment in Hermosa through the production of battery-grade manganese, a mineral designated as critical in the US.

“Additional exploration targets around Taylor and Clark are indicative of further upside while the broader land package contains highly prospective areas for polymetallic and copper mineralisation.

“We are designing the Taylor Deposit to be our first ‘next generation mine’, using automation and technology to minimise our impact on the environment and to target a carbon neutral operation in line with our goal of achieving net zero operational carbon emissions by 2050.

“The future development of Taylor provides a platform from which to realise Hermosa’s immense potential. It will further strengthen our portfolio and align with the already substantial growth in production of metals critical to a low carbon future that we have embedded in the portfolio over the past six months.”

Hermosa Project

Hermosa is a polymetallic development option located in Santa Cruz County, Arizona, and is 100% owned by South32. It comprises the zinc-lead-silver Taylor sulfide deposit (Taylor Deposit), the zinc-manganese-silver Clark oxide deposit (Clark Deposit) and an extensive, highly prospective land package with the potential for further polymetallic and copper mineralisation. Hermosa is well located with excellent access to skilled people, services and transport logistics.

The company has completed a PFS for the Taylor Deposit, its first development option at Hermosa. The Taylor Deposit is a large, carbonate replacement massive sulfide deposit which extends to a depth of approximately 1200 m over an approximate strike length of 2500 m and width of 1900 m. The mineral resource estimate for the Taylor Deposit is 138 million t, averaging 3.82% zinc, 4.25% lead and 81 g/t silver. The deposit remains open at depth and laterally, offering further exploration potential.

The preferred mine design applied to the PFS is a dual shaft access mine which prioritises higher grade mineralisation early in the mine’s life. The mining method is longhole open stoping, with the geometry of the orebody enabling the operation of multiple concurrent mining areas. This supports our assumption of an initial 22-year resource life with high mining productivity. Ramp up to nameplate capacity of up to 4.3 million tpy is expected to be achieved in a single stage. The process design applies a conventional sulfide ore flotation circuit producing separate zinc and lead concentrates with substantial silver credits.

In addition to the current mineral resource estimate for Taylor, South32 haa defined an exploration target ranging from 10 – 95 million t, indicating the potential for further exploration upside. The exploration opportunity at Taylor includes depth and extensional opportunities, as well as new prospects in proximity to the deposit. The company has identified an exploration target at depth to the Taylor Deposit known as Peake, with initial drilling results returning copper and polymetallic mineralisation. Further drilling at Peake is planned in CY22.

Separately, South32 has completed a scoping study for the spatially linked Clark Deposit, confirming the potential for an underground mining operation producing battery-grade manganese, as well as zinc and silver. It is undertaking a PFS for Clark to increase its confidence in the mining and processing assumptions of a preferred development option and customer opportunities in the rapidly growing battery-grade manganese markets.

The Clark Deposit is interpreted as the upper oxidised, manganese-rich portion of the mineralised system that hosts Taylor. As South32 advances both its Taylor and Clark studies, its maintain the option to merge this work and assess an integrated underground mining operation. While such a scenario would require separate processing circuits to produce base and precious metals, and battery-grade manganese, an integrated development has the potential to unlock further operating and capital efficiencies.

The third focus at Hermosa remains on unlocking value through exploration of the regional scale land package. Through the completion of surface geophysics, soil sampling, mapping and interpretation of recently acquired data, South32 has identified a highly prospective corridor which will be prioritised for future drilling. Within this corridor, South32 plans to drill the Flux prospect following receipt of required permits, anticipated in 2H22. The Flux prospect is located down-dip of a historic mining area that has the potential for carbonate hosted, Taylor-like mineralisation.

PFS highlights

The PFS results demonstrate Taylor’s potential to be a globally significant producer of green metals critical to a low carbon future, in the first quartile of the industry cost curve. Taylor has the potential to underpin a regional scale opportunity at Hermosa, with ongoing activities to unlock additional value from the Clark Deposit and exploration opportunities across the regional land package.

  • The initial development scenario outlines the potential for a large scale, highly productive underground mine:
    • Dual shaft access which prioritises higher grade ore in early years.
    • Proposed mining method is low technical risk, employing longhole open stoping with paste backfill.
    • Single stage ramp-up to nameplate production of up to 4.3 million tpy.
    • Conventional sulphide ore flotation circuit.
  • Potential to be a globally significant producer of metals for a low carbon future:
    • PFS estimates annual average production ~111 000 t zinc, ~138 000 t lead and ~7.3million oz silver (~280 000 t zinc equivalent (ZnEq), with output ~20% higher across the years of steady state production.
    • Zinc is used in renewable energy infrastructure such as solar and wind for energy conversion and to protect against corrosion; silver is a key element used in solar panels; while lead demand is expected to be supported by its use in renewable energy storage systems.
  • Potential for a low cost operation in the industry’s first quartile:
    • Average operating unit costs ~US$81/t ore milled (all-in sustaining cost (AISC) ~US$(0.05)/lb ZnEq) benefitting from high underground productivity.
  • Directs capital to establish a multi-decade base metals operation and platform for growth at Hermosa:
    • Project capital of ~US$1230 million (direct) and ~US$470 million (indirect) to establish the first development option.
    • Low sustaining capital ~US$40 million/yr.
    • Potential to realise capital efficiencies through an integrated development of Taylor and Clark.
  • A large mineral resource with substantial exploration potential:
    • Taylor Deposit supports an initial resource life of ~22 years, and remains open at depth and laterally - 10 – 95 million t exploration target identified, indicating the potential for further exploration upside.
    • Copper-lead-zinc-silver mineralisation intercepted at the proximal Peake prospect.
  • Pursues the sustainable development of critical metals:
    • South32 is investing in local programmes and partnerships that reflect the priorities of its communities.
    • It is committed to working with Native American tribes to protect cultural resources .
    • It has completed key biodiversity, ecosystem and water studies.
    • The company is pursuing a pathway to net zero carbon emissions with identified options for renewable energy.

Next steps

Taylor will now progress to a feasibility study which is targeted for completion in mid CY23. To maintain the preferred development path in the PFS, critical path items including construction and installation of infrastructure to support additional orebody dewatering is planned to commence in 2H22. Total pre-commitment capital expenditure associated with dewatering of approximately US$55 million is expected in 2H22, with further investment expected in FY23.

The PFS assumes a single stage ramp-up to the nameplate production rate. Based on the PFS schedule, and subject to a final investment decision and receipt of required permits, shaft development is expected to commence in FY24. First production is targeted in FY27 with surface infrastructure, orebody access, initial production and tailings storage expected on patented lands which require state-based approvals. Surface disturbance and additional tailings storage on unpatented land will require completion of the National Environmental Policy Act (NEPA) process with the United States Forest Service (USFS). The project may benefit from the classification of metals found at Hermosa as critical minerals in the US. Zinc is proposed to be added as a critical mineral by the U.S. Geological Survey while manganese (found at the Clark Deposit) already has this designation.

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