REG - South32 Limited - Hermosa Project Update
17/01/2022 07:05
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RNS Number : 6415Y South32 Limited 17 January 2022
17 January 2022
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
HERMOSA PROJECT UPDATE
Conference call at 11.00am Australian Western Standard Time, details overleaf.
South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) is pleased to
provide an update following completion of a pre-feasibility study (PFS) for
the Taylor Deposit, which is the first development option at our 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
[footnote 1].
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 a 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, we have continued to complete surface geophysics, soil sampling and
other exploration programs across our 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 b which will be
prioritised for drill testing in CY22.
Further details of the Taylor PFS are contained in the attached report and
accompanying presentation.
South32 Chief Executive Officer, 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 pre-feasibility study 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 United States.
"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."
__________________________
(a) The references to the scoping study in respect of the Clark Deposit are to
be read in conjunction with the cautionary statement in footnote 2 (can be
viewed on page 18 in the full announcement available on the NSM).
(b) The references to the Exploration Target for the Hermosa project
(including Peake) are to be read in conjunction with the cautionary statement
in footnote 3 (can be viewed on page 18 in the full announcement available on
the NSM
Conference call
South32 will hold a conference call at 11.00am Australian Western Standard
Time (2.00pm Australian Eastern Daylight Time) on 17 January 2022 to provide
an update of the Hermosa project including Q&A, the details of which are
as follows:
Conference ID
Please pre-register for this call at link
(https://s1.c-conf.com/diamondpass/10018829-sma72.html) .
Website
A replay of the conference call will be made available on the South32 website.
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 sulphide 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.
We have completed a PFS for the Taylor Deposit, our first development option
at Hermosa. The Taylor Deposit is a large, carbonate replacement massive
sulphide deposit which extends to a depth of approximately 1,200m over an
approximate strike length of 2,500m and width of 1,900m. The Mineral Resource
estimate for the Taylor Deposit is 138Mt, averaging 3.82% zinc, 4.25% lead
and 81 g/t silver [footnote 4]. 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 [footnote 5] with high mining productivity.
Ramp up to nameplate capacity c of up to 4.3 million tonnes per annum (Mtpa)
[footnote 7] is expected to be achieved in a single stage. The process design
applies a conventional sulphide ore flotation circuit producing separate zinc
and lead concentrates with substantial silver credits.
In addition to the current Mineral Resource estimate for Taylor, we have
defined an Exploration Target ranging from 10 to 95Mt [footnote 3] 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. We have 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, we have 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.
We are undertaking a PFS for Clark to increase our 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 we advance both our Taylor and
Clark studies, we 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.
Our third focus at Hermosa remains on unlocking value through exploration of
our regional scale land package. Through the completion of surface geophysics,
soil sampling, mapping and interpretation of recently acquired data, we have
identified a highly prospective corridor which will be prioritised for future
drilling. Within this corridor, we plan to drill the Flux prospect following
receipt of required permits, anticipated in the second half of CY22. The Flux
prospect is located down-dip of a historic mining area that has the potential
for carbonate hosted, Taylor-like mineralisation [footnote 8].
__________________________
(c) The references to all Production Targets and resultant financial forecast
information in this announcement is to be read in conjunction with the
cautionary statement in footnote 6 (can be viewed on page 18 in the full
announcement available on the NSM). The key facts and material assumptions to
support the reasonable basis for this information is provided in Annexure 2 of
this announcement.
Strategic alignment
We continue to actively reshape our portfolio for a low carbon future,
investing in opportunities that increase our exposure to base and precious
metals, with strong demand fundamentals and low carbon production intensity.
The Taylor Deposit is our most advanced development option at the Hermosa
project, which has the potential to provide a multi-decade platform at the
operation that would further improve the Group's exposure to the metals
required for the transition to a low carbon future.
Sustainable development
Sustainable development is at the heart of our purpose at South32 and forms an
integral part of our strategy. The Taylor Deposit has been designed as our
first "next generation mine" using automation and technology to drive
efficiencies, minimise our impact and reduce carbon emissions. We have
completed initial work programs and studies with respect to our communities,
cultural heritage, environment and water, and any future development at
Hermosa will be consistent with our approach to sustainable development.
The Taylor Deposit has been designed as a low-carbon operation, with the
feasibility study to target the further potential to achieve carbon
neutrality. This may be achieved through identified options to access
100% renewable energy from local providers, and the potential use of battery
electric vehicles and underground equipment. The development of the Taylor
Deposit would be consistent with our commitment to a 50% reduction in our
operational carbon emissions by FY35 and net zero by 2050.
Capital management framework
A final investment decision for the Taylor Deposit and its potential tollgate
to construction will be assessed within our unchanged capital management
framework. Our framework, which prioritises investment in safe and reliable
operations, an investment grade credit rating and returns to shareholders via
our ordinary dividends, also seeks to establish and pursue options that create
enduring value for shareholders, such as capital investments in new projects.
Our preferred funding mechanism for any future developments at Hermosa will be
consistent with our commitment to an investment grade credit rating through
the cycle that supports our strong balance sheet.
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.
· Our 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 4.3Mtpa
- Conventional sulphide ore flotation circuit
· Potential to be a globally significant producer of metals for a
low carbon future
- PFS estimates annual average production ~111kt zinc, ~138kt lead
and ~7.3Moz silver (~280kt zinc equivalent (ZnEq) [footnote 9], with output
~20% higher across the years of steady state production [footnote 10]
- 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$81/t ore milled (all-in
sustaining cost (AISC) [footnote 11] ~US$(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$1,230M (direct) and ~US$470M (indirect)
to establish the first development option
- Low sustaining capital ~US$40M per annum
- 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 to 95Mt 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
- We are investing in local programs and partnerships that reflect
the priorities of our communities
- We are committed to working with Native American tribes to
protect cultural resources
- We have completed key biodiversity, ecosystem and water studies
- We are pursuing a pathway to net zero carbon emissions with
identified options for renewable energy
FURTHER OPPORTUNITIES TO UNLOCK VALUE
Reflecting the early stage nature of the project we have identified numerous
opportunities to unlock further value at Taylor that will be pursued prior to
a final investment decision. Opportunities identified include the potential
to:
· Extend the resource life, which is underpinned by the current
Taylor Mineral Resource estimate and does not include the further potential
identified in our Exploration Target.
· Reduce operating costs through:
- Further optimisation of the mining schedule, power consumption
and comminution circuit;
- Supplying smelters in the Americas to realise a material
reduction in transport costs; and
- Adopting emerging technologies and further automation
opportunities, targeting enhanced productivity.
· Reduce capital costs through further optimisation of the shaft
design, construction and procurement.
· Achieve a carbon neutral operation through access to 100%
renewable energy from local suppliers.
· Integrate the underground development with the Clark Deposit.
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 H2 FY22.
Total pre-commitment capital expenditure associated with dewatering of
approximately US$55M is expected in H2 FY22, with further investment expected
in FY23. This expenditure is included in the growth capital estimate in Table
1 below.
The PFS assumes a single stage ramp-up to the nameplate production rate. Based
on the PFS schedule, and subject to a final investment decision and receipt of
required permits, shaft development is expected to commence in FY24. First
production is targeted in FY27 with surface infrastructure, orebody access,
initial production and tailings storage expected on patented lands which
require state-based approvals. Surface disturbance and additional tailings
storage on unpatented land will require completion of the National
Environmental Policy Act (NEPA) process with the United States Forest Service
(USFS). The project may benefit from the classification of metals found at
Hermosa as critical minerals in the United States. Zinc is proposed to be
added as a critical mineral by the U.S. Geological Survey while manganese
(found at the Clark Deposit) already has this designation.
PFS SUMMARY RESULTS
Key PFS outcomes are summarised below. Given the project's early stage nature,
the accuracy level in the PFS for operating costs and capital costs is -15% /
+25%. The cost estimate has a base date of H1 FY22. Unless stated otherwise,
currency is in US dollars (real) and units are in metric terms.
Table 1: Key PFS outcomes
Production Nameplate production capacity Mtpa ~4.3
Resource life Years ~22
Head grades (average) %, g/t 4.1% Zn, 4.5% Pb, 82 g/t Ag
Annual payable zinc production (average / steady state [footnote 10]) kt ~111 / ~130
Annual payable lead production (average / steady state) kt ~138 / ~166
Annual payable silver production (average / steady state) ( ) Moz ~7.3 / ~8.7
Annual payable ZnEq production [footnote 9] (average / steady state) kt ~280 / ~340
Operating costs Operating unit costs (per tonne ore milled) US$/t ~81
Operating unit costs (per lb ZnEq) US$/lb ZnEq ~(0.71)
Capital expenditure Direct growth capital US$M ~1,230
Indirect growth capital US$M ~470
Sustaining capital (annual average)( ) US$M ~40
Taylor DEPOSIT PFS
The PFS for the Taylor Deposit provides confirmation that it is a technically
robust project that has the potential to deliver an attractive return on
investment. The PFS is based on an underground zinc-lead-silver mine
development using longhole open stoping and a conventional sulphide ore
flotation circuit producing separate zinc and lead concentrates, with silver
by-product credits. The preferred development scenario is based on a mining
and processing rate of up to 4.3Mtpa, with a resource life of approximately 22
years.
The PFS was completed with input from consultants including Fluor for the
process plant and on-site infrastructure, SRK Consulting for geological and
technical reviews, Stantec for mining studies, NewFields for hydrogeology,
Montgomery & Associates for dewatering and tailings, Black and Veatch, and
BQE for water treatment design and CPE for off-site roads. The PFS has been
subject to an independent peer review.
Mineral Resource estimate
The Taylor Deposit is a carbonate replacement style zinc-lead-silver massive
sulphide deposit. It is hosted in Permian carbonates of the Pennsylvanian Naco
Group of south-eastern Arizona. The Taylor Deposit comprises the upper Taylor
sulphide (Taylor Mains) and lower Taylor deeps (Taylor Deeps) domains that
have a general northerly dip of 30° and are separated by a low angle thrust
fault.
The Taylor Mineral Resource estimate is reported in accordance with the JORC
Code (2012) at 138Mt, averaging 3.82% zinc, 4.25% lead and 81 g/t silver
with a contained 5.3Mt of zinc, 5.9Mt of lead and 360Moz of silver. The
Mineral Resource estimate is reported using a net smelter return (NSR) cut-off
value of US$80/t for material considered extractable by underground open
stoping methods.
The Taylor Deposit has an approximate strike length of 2,500m and a width of
1,900m. The stacked profile of the thrusted host stratigraphy extends 1,200m
from near-surface and is open at depth and laterally. It is modelled as one of
the first carbonate replacement deposit occurrences in the region, with all
geological and geochemical information acquired to date being consistent with
this model.
Figure 1: Taylor Mineral Resource (image can be viewed in the full
announcement available on the NSM)
Exploration Target
The Taylor Mineral Resource is within a highly prospective mineralised system
and is open at depth and laterally, offering the potential for further
exploration upside.
We have completed work aimed at developing an unconstrained, spatial view of
the Exploration Target at the Taylor Deposit, considering extensional and
near-mine exploration potential.
The Hermosa project has sufficient distribution of drill data to support
evaluation of the size and quality of Exploration Targets. Tables of
individual drill hole results are provided in Annexure 1 of this announcement,
as well as a listing of the total number of holes and metres that support
the assessment of the Exploration Target size and quality.
The tonnage represented in defining Exploration Targets is conceptual in
nature. There has been insufficient exploration to define a Mineral Resource
and it is uncertain if further exploration will result in the determination of
a Mineral Resource. It should not be expected that the quality of the
Exploration Targets is equivalent to that of the Mineral Resource.
Estimations were performed using resource range analysis, in which
deterministic estimates of potential volumes and grades are made over a range
of assumptions on continuity and extensions that are consistent with available
data and generic models of carbonate replacement, skarn and vein styles of
mineralisation.
The estimates are supported by exploration results from prospects in and
around the Taylor Mineral Resource. These results are all of carbonate
replacement, skarn, and vein styles of mineralisation and are currently
explored at varying degrees of maturity and exploration drilling density.
Outcomes for the Exploration Target are provided in Table 2 below. The mid
case Exploration Target is approximately 45Mt.
Table 2: Ranges for the Exploration Target for Taylor sulphide mineralisation
(as at 31 December 2021)
Low Case Mid Case High Case
Mt % % g/t Mt % % g/t Mt % % g/t
Zn Pb Ag Zn Pb Ag Zn Pb Ag
Sulphide 10 3.8 4.2 81 45 3.4 3.9 82 95 3.6 4.0 79
Notes:
a) Net smelter return cut-off (US$80/t): Input parameters for
the NSR calculation are based on South32's long term forecasts for zinc, lead
and silver pricing, haulage, treatment, shipping, handling and refining
charges. Metallurgical recovery assumptions are 90% for zinc, 91% for lead,
and 81% for silver.
b) All masses are reported as dry metric tonnes (dmt). All tonnes
and grade information have been rounded to reflect relative uncertainty of the
estimate, hence small differences may be present in the totals.
Peake prospect
Our drilling programs at the Taylor Deposit have focused on improving
confidence in the mine plan for the potential development, extending the
resource and testing near-mine exploration prospects.
As part of our work on near-mine exploration targets, we have intersected the
skarn hosted copper-lead-zinc-silver Peake prospect, located south of the
Taylor Deposit at a depth of approximately 1,300-1,500m. To date,
13 drill holes have been completed at Peake, a deeper zone prospective for
copper mineralisation, returning results that intersected copper, lead, zinc
and silver. The geological model interpreted from these results and other
recently acquired data indicates the potential for a continuous structural and
lithology-controlled system connecting Taylor Deeps and Peake. Further
exploration drilling is planned in CY22.
Selected exploration drilling results from the Peake prospect are shown in
Table 3 below.
Table 3: Selected Peake drilling results
Hole ID From To Cut off Width Zinc Lead Silver Copper
(m) (m) (m) (%) (%) (ppm) (%)
HDS-540 1279.2 1389.0 0.2% Cu 109.7 0.1 0.3 15 0.62
Includin
g
1303.6 1309.7 0.2% Cu 6.1 0.2 0.4 61 3.48
HDS-552 1308.2 1384.7 0.2% Cu 76.5 0.2 0.4 25 1.52
Includin
g
1309.9 1328.6 0.2% Cu 18.8 0.1 0.2 40 2.77
And
1364.3 1384.7 0.2% Cu 20.4 0.1 0.3 37 2.44
HDS-661 1322.2 1374.6 0.2% Cu 52.4 0.1 1.1 105 1.73
Includin
g
1322.2 1346.0 0.2% Cu 23.8 0.1 0.8 81 3.32
Includin
g
1322.2 1330.1 0.2% Cu 7.9 0.1 0.4 81 7.89
1386.8 1460.6 0.2% Cu 73.8 0.5 0.7 67 1.06
Includin
g
1399.6 1410.3 0.2% Cu 10.7 0.7 1.5 227 2.84
HDS-717 1456.6 1466.7 0.2% Cu 10.1 0.5 1.0 78 2.57
All exploration drilling results from the Peake prospect are shown in Table 4
below. All drill intersections used to define the Exploration Target are
included in Annexure 1 of this announcement.
Table 4: All Peake drilling results
Hole ID From To Cut off Width Zinc Lead Silver Copper
(m) (m) (m) (%) (%) (ppm) (%)
HDS-535 No significant intersection
HDS-540 1279.2 1389.0 0.2% Cu 109.7 0.1 0.3 15 0.62
Includin
g
1303.6 1309.7 0.2% Cu 6.1 0.2 0.4 61 3.48
1469.7 1488.0 0.2% Cu 18.3 0.0 0.0 10 0.63
HDS-545 No significant intersection
HDS-549 1169.5 1175.6 0.2% Cu 6.1 1.5 1.6 312 1.92
HDS-551 1100.6 1111.6 0.2% Cu 11.0 0.0 0.2 10 0.39
1254.9 1280.8 0.2% Cu 25.9 0.0 0.0 10 0.54
1294.5 1372.8 0.2% Cu 78.3 0.0 0.1 10 0.51
HDS-552 1265.8 1273.9 0.2% Cu 8.1 0.2 0.5 27 0.39
1308.2 1384.7 0.2% Cu 76.5 0.2 0.4 25 1.52
Includin
g
1309.9 1328.6 0.2% Cu 18.8 0.1 0.2 40 2.77
And
1364.3 1384.7 0.2% Cu 20.4 0.1 0.3 37 2.44
1478.9 1484.8 0.2% Cu 5.9 1.0 1.5 57 0.41
HDS-557 No significant intersection
HDS-661 1298.4 1305.2 2% ZnEq 6.7 0.6 3.4 249 0.89
1322.2 1374.6 0.2% Cu 52.4 0.1 1.1 105 1.73
Includin
g
1322.2 1346.0 0.2% Cu 23.8 0.1 0.8 81 3.32
Includin
g
1322.2 1330.1 0.2% Cu 7.9 0.1 0.4 81 7.89
1386.8 1460.6 0.2% Cu 73.8 0.5 0.7 67 1.06
Includin
g
1399.6 1410.3 0.2% Cu 10.7 0.7 1.5 227 2.84
And
1424.0 1446.9 0.2% Cu 22.9 0.5 0.6 45 1.24
1555.1 1573.1 0.2% Cu 18 3.2 1.4 87 0.37
HDS-662 1316.4 1329.2 0.2% Cu 12.8 3.4 4.4 137 0.95
1540.8 1546.7 2% ZnEq 5.9 5.9 2.1 250 0.45
HDS-663 1580.1 1591.8 0.2% Cu 11.7 0.1 0.0 16 0.95
1615.9 1651.1 0.2% Cu 35.2 1.1 0.1 27 0.56
HDS-691 1343.6 1353.6 2% ZnEq 10.1 3.8 3.5 61 0.47
1384.7 1395.4 0.2% Cu 10.7 2.7 2.9 38 1.03
1405.9 1415.2 0.2% Cu 9.3 0.5 0.7 11 0.26
1421.3 1452.1 0.2% Cu 30.8 0.7 0.8 22 0.59
1463.6 1509.7 0.2% Cu 46.0 0.4 0.5 21 0.43
1540.6 1549.3 0.2% Cu 8.7 0.3 0.9 51 0.61
1563.9 1581.3 0.2% Cu 17.4 0.2 0.2 23 0.55
1662.7 1677.9 0.2% Cu 15.2 2.8 1.1 155 1.19
1683.4 1692.6 2% ZnEq 9.1 1.5 0.3 45 0.13
1732.0 1735.2 2% ZnEq 3.2 6.2 0.3 107 0.18
1994.6 1997.4 2% ZnEq 2.7 1.7 0.3 54 0.08
HDS-717 1065.3 1072.4 0.2% Cu 7.2 3.5 2.7 22 0.21
1306.1 1318.3 0.2% Cu 12.2 1.8 1.8 63 0.82
1444.1 1466.7 0.2% Cu 22.6 1.7 1.7 46 1.38
Includin
g
1456.6 1466.7 0.2% Cu 10.1 0.5 1.0 78 2.57
1517.9 1522.2 2% ZnEq 4.3 3.0 1.8 49 0.03
1718.6 1727.0 0.2% Cu 8.4 1.0 0.1 39 1.99
1754.1 1763.3 2% ZnEq 9.1 1.4 0.5 42 0.13
HDS-763 1429.8 1439.6 2% ZnEq 9.8 2.3 0.1 3 0.02
Figure 2: Peake prospect (image can be viewed in the full announcement
available on the NSM)
Mining
The PFS design for Taylor is a dual shaft mine which prioritises early access
to higher grade mineralisation, supporting ZnEq average grades of
approximately 12% [footnote 9] in the first five years of the mine plan. The
proposed mining method, longhole open stoping, maximises productivity and
enables a single stage ramp-up to our preferred development scenario of up to
4.3Mtpa. In the PFS schedule, shaft development is expected to commence in
FY24 with first production targeted in FY27 and nameplate production in FY30.
Ore is expected to be mined in an optimised sequence concurrently across four
independent mining areas, crushed underground and hoisted to the surface for
processing. The mine design contemplates two shaft stations, one for logistics
and access, and the other for material handling. The primary haulage material
handling level is expected to be located at a depth of approximately 800m.
The operation would be largely resourced with a local owner-operator
workforce, with a mining fleet consisting of jumbo drills, rock bolters,
production drills, load, haul and dump machines and haulage trucks. Taylor's
feasibility study will evaluate the potential use of battery electric
underground equipment and trucks within the mining fleet, bringing further
efficiency benefits, reducing diesel consumption and carbon emissions.
Processing
The PFS process plant design is based on a sulphide ore flotation circuit to
produce separate zinc and lead concentrates, with silver by-product credits.
The flowsheet adheres to conventional principles with a primary crusher,
crushed ore bins, comminution circuit, sequential flotation circuit,
thickening and filtration. Tailings are processed by either filtration and
drystacking, or by converting to paste and returning them underground.
Approximately half of the planned tailings will be sent underground as paste
fill, reducing the surface environmental footprint.
Pre-flotation and pre-float concentrate cleaning steps have been included in
the plant design to prevent magnesium oxide and talc from affecting flotation
performance and concentrate quality. Jameson cell technology is proposed to be
used in place of some traditional mechanical flotation cells to enhance
recoveries. Once filtered, concentrate would be loaded directly into
specialised bulk containers.
The PFS processing facility has design recoveries of 90% for zinc and 91% for
lead, and target concentrate grades of 53% for zinc and 70% for lead. Silver
primarily reports to the lead concentrate, with a design recovery of 81%. The
zinc concentrate is considered mid-grade with relatively high silver content
for zinc, and the lead concentrate is considered high-grade. Indicative
production rates in the PFS are shown in Figure 3.
Figure 3: Payable ZnEq production and head grade (image can be viewed in the
full announcement available on the NSM)
The PFS mine ramp-up enables nameplate capacity to be reached in FY30. Annual
average payable production is ~111kt zinc, ~138kt lead and ~7.3Moz silver
(~280kt ZnEq [footnote 9]). Production over the steady state years (FY30 to
FY44) is expected to be approximately 20% higher, averaging ~130kt zinc,
~166kt lead and ~8.7Moz silver (~340kt ZnEq [footnote 9]).
Site infrastructure
PFS capital includes estimates for non-processing infrastructure, including
required tailings, power and water infrastructure.
Figure 4: Site infrastructure (image can be viewed in the full announcement
available on the NSM)
The tailings storage facilities (TSF) have been designed in accordance with
South32's Dam Management Standard, with our approach being consistent with the
International Council on Mining and Metals (ICMM) Tailings Governance
Framework. We are also progressing work on compliance with the Global Industry
Standard on Tailings Management. Approximately half of the tailings produced
will be thickened and filtered and sent back underground as paste backfill,
reducing the surface environmental footprint. The remaining filtered tailings
will be placed in one of two dry stack TSFs. The first facility is located on
patented land and is an expansion to the existing TSF which was constructed as
part of the voluntary remediation program completed in CY20. This already
completed work established a state-of-the-art dry stack facility which will
provide initial tailings capacity to support the commencement of operations.
The PFS contemplates a second purpose-built facility on unpatented land,
requiring Federal permits.
Future site power needs are expected to be met through transmission lines
connecting to the local grid. Grid power is currently generated from a
combination of coal, natural gas and renewables including solar, hydro and
wind power. We have commenced discussions in relation to securing 100%
renewable energy for the project, with options for grid-based renewable energy
as well as new solar power projects to be advanced through the feasibility
study.
Orebody dewatering is a critical path activity in the PFS schedule and capital
expenditure has been committed to support construction and the installation of
its related infrastructure, commencing from H2 FY22. The hydrogeological
studies completed in the PFS and the design of the required water wells and
infrastructure have been completed to feasibility-stage standards to support
the execution of these early works.
Water treatment requirements are expected to met through two proposed water
treatment plants (WTP). WTP1 is already installed and treatment upgrades are
expected to be commissioned in Q3 FY22, while WTP2 is expected to be
commissioned in Q4 FY23.
Logistics
Hermosa is well located with existing nearby infrastructure for both bulk rail
and truck shipments to numerous North American ports. The transportation of
concentrates is expected to be a combination of trucking to a rail transfer
facility (for subsequent rail transfer to port) and directly to port, for
shipping to Asian and European smelters. Specialised bulk containers will be
used to eliminate dust exposure from the time of load out until discharge to
the ocean vessel. The expected trucking route in the PFS includes the
construction of a connecting road to a state highway and other upgrades to
road infrastructure.
PFS shipping costs assume transportation of concentrate to Asia and Europe.
During feasibility we will continue to investigate the potential to supply
smelters in the Americas, substantially lowering our assumed transport
logistics and shipping costs.
Operating cost estimates
The PFS includes estimates for mining, processing, general and administrative
operating costs.
Mining costs (~US$35/t ore processed) include all activities related to
underground mining, including labour, materials, utilities and maintenance.
Processing costs (~US$13/t ore processed) include consumables, labour and
power. General and administrative costs (~US$10/t ore processed) include head
office corporate costs and site support staff. Other costs (~US$23/t ore
processed) include shipping and transport (~US$16/t ore processed), marketing
and royalties, with private net smelter royalties averaging 2.4% (~US$4/t ore
processed).
Average PFS operating unit costs of ~US$81/t ore processed (~US$77/t at steady
state production) reflect the high productivity rates expected from
concurrently mining multiple independent underground areas and the benefit
from access to local, skilled service providers.
Average PFS Operating unit costs expressed on a zinc equivalent basis of
~US$(0.71)/lb and AISC [footnote 11] of ~US$(0.05)/lb place the Taylor Deposit
in the first quartile of the industry cost curve(1).
Table 5: Operating unit costs - $t/ore processed
Item US$/t ore processed
Mining ~35
Processing ~13
General and administrative ~10
Other (including royalties) ~23
Total ~81
Table 6: Operating unit costs - $/lb ZnEq
Item $/lb ZnEq
Mining ~0.51
Processing ~0.19
General and administrative ~0.15
Other (including royalties) ~0.33
Operating unit costs ~1.18
Lead and silver credits ~(1.89) [footnote 12]
Zinc equivalent operating unit costs ~(0.71)
Capital cost estimates
Direct PFS capital expenditure estimates to construct Taylor are shown below.
The construction period following a final investment decision is expected to
be approximately four years. Indirect costs include contingency, owner's and
engineering, procurement, and construction management (EPCM) costs to support
the project. The Group will also continue to incur ongoing costs for work
being undertaken across the broader Hermosa project that will be separately
guided.
Table 7: Growth capital expenditure (from 1 January 2022)
Item US$M
Mining ~565
Surface facilities ~440
Dewatering ~225
Direct costs ~1,230
Indirect costs (including contingency) ~470
Total ~1,700
Mining capital expenditure includes the shafts (~US$310M), development, mobile
equipment and infrastructure. Surface facilities includes the processing plant
(~US$350M), tailings and utilities. The capital estimate reflects assumptions
for key inputs including steel, cement and labour as at H1 FY22.
Additional capital is included in the PFS estimates for critical path orebody
dewatering. The direct capital expenditure estimate of US$225M includes
expenditure directly attributable to water wells and a second required water
treatment plant. A further ~US$140M of owner's costs across the period of
dewatering are included within indirect costs (~US$470M).
Further value engineering work in the feasibility study will target a
potential reduction in capital costs through further optimisation of the shaft
design, construction and procurement.
Sustaining capital expenditure is expected to average approximately US$40M per
annum and primarily relates to mine development.
Development approvals
The Hermosa project's mineral tenure is secured by 30 patented mining claims
totaling 228 hectares that have full surface and mineral rights owned by
South32. The patented land is surrounded by 1,957 unpatented mining claims
totaling 13,804 hectares. The surface rights of the unpatented mining claims
are administered by the USFS under multiple-use regulatory provisions.
The initial PFS mine development and surface infrastructure, including the
processing plant, on-site power and the first TSF are designed to be located
on patented mining claims. As a result, construction and mining of the Taylor
Deposit can commence with approvals and permits issued by the State of
Arizona. Several required permits for dewatering are already held, with the
timeframe to receive the remaining State-based approvals expected to take up
to approximately two years. Surface disturbance and additional tailings
storage on unpatented land will require completion of the NEPA process with
the USFS, in order to receive a Record of Decision (RoD). The ramp-up to
nameplate production assumed in the PFS could take longer than contemplated if
the RoD was delayed, as production may need to be slowed so tailings capacity
could be restricted to patented lands until the RoD is received.
Our approach to sustainability at Hermosa
Sustainable development is at the heart of our purpose at South32 and forms an
integral part of our strategy. Our commitment to sustainable development is
embedded in the approach we are adopting at Taylor.
We have developed a comprehensive stakeholder identification, analysis and
engagement plan. Our key stakeholders include local communities within Santa
Cruz County, Native American tribes with historic affiliation around the
project area, and county, state and federal government agencies.
Partnering with local communities
We have developed a community investment plan for Hermosa. Key investment
initiatives include a South32 Hermosa Community Fund developed in partnership
with the Community Foundation for South Arizona, community sponsorships and
grants to community programs that reflect the priorities of the communities
around Hermosa. In addition to community investment programs, we have
established local procurement and employment plans designed to provide direct
economic benefits for our communities.
Preserving cultural heritage
We are committed to working with Native American tribes who have a historic
affiliation with the area around the Hermosa project. While there are no
Native American trust lands near Hermosa, historic habitation or use of the
region by Indigenous Peoples may establish culturally significant
connections. We have completed initial surveys for cultural resources on
both our patented lands and unpatented mining claims and will continue to
engage with Native American tribes who have historic affiliations to gain a
more thorough understanding of sensitive cultural resources.
Managing our environmental impact
An environmental management plan (EMP) has been developed for Hermosa that is
consistent with the South32 Environment Standard. Key aspects of the EMP
include baseline studies, risk assessments and mapping of key features with
respect to biodiversity, ecosystems and water. The baseline studies have
included several biological studies and surveys, including for species listed
under the Endangered Species Act (ESA) and USFS sensitive species, as well as
monitoring of surface water, ground water and air quality. The ongoing
collection, analysis and modelling of baseline information and survey data
will align with the South32 Environment Standard and support the required
permits and approvals for Hermosa.
Hermosa is in a semi-arid environment, with most rainfall occurring in the
"monsoon" season of July through October. Water resource monitoring and
management plans have been developed to support an understanding of the
baseline conditions and numerical modelling of surface and groundwater
resources. Additional studies are planned for completion as part of the Taylor
feasibility study.
Targeting net zero carbon operational emissions
Taylor has been designed as a low carbon operation, with the primary sources
of carbon emissions being residual diesel consumption and grid power. We have
identified several opportunities to improve this starting position, with
active discussions to secure 100% renewable energy for site power and the
feasibility study to include further evaluation of the potential use of
battery electric vehicles and underground mining equipment. We are testing
technology solutions to support this, with a trial of electric vehicles
planned at our Cannington zinc-lead-silver mine during FY22 and our ongoing
participation in the Electric Mine Consortium [footnote 13].
Commodities for a low carbon future
The proposed development of Taylor is consistent with our focus on reshaping
our portfolio for a low carbon future, increasing our exposure to base and
precious metals and reducing our carbon intensity.
The metals produced at Taylor are expected to play a role in supporting global
decarbonisation. Zinc demand is expected to benefit from an increase in
renewable energy infrastructure such as solar, where it allows for higher
energy conversion, and wind, given its use in protecting key elements from
corrosion. Silver is used in solar panels due to its superior electrical
conductivity and has higher intensity of use in electric vehicles compared to
internal combustion engine (ICE) cars. In the medium term, the ongoing growth
in ICE vehicles sales will continue to see demand for lead-acid batteries
grow, with lead demand also expected to be supported by its use in renewable
energy storage systems.
Taylor project summary
Key PFS assumptions and outcomes are summarised below.
Table 8: Taylor PFS assumptions
Mining
Mineral Resource estimate 138Mt averaging 3.82% zinc, 4.25% lead and 81g/t silver
Resource life ~22 years
Mining method Longhole open stoping with paste backfill
Mined ore grades Zinc 4.1%, Lead 4.5%, Silver 82g/t
Processing
Mill capacity ~4.3Mtpa
Concentrates Separate zinc and lead concentrates with silver credits
Zinc recoveries (in zinc concentrate) ~90%
Lead recoveries (in lead concentrate) ~91%
Silver recoveries (in lead concentrate) ~81%
Metal payability Zinc ~85%, Lead ~95%, Silver ~95% (in lead concentrate)
Zinc concentrate grade ~53%
Lead concentrate grade ~70%
Payable metal production
Zinc ~2.4Mt (~111kt annual average)
Lead ~3.0Mt (~138kt annual average)
Silver ~160Moz (~7.3Moz annual average)
Zinc equivalent [footnote 9] ~6.2Mt (~280kt annual average)
Capital costs
Direct capital expenditure ~US$1,230M
Indirect capital expenditure ~US$470M
Sustaining capital expenditure ~US$40M annual average
Schedule
First production FY27
Steady state production FY30-FY44
Operating costs
Mining costs ~US$35/t ore processed
Processing costs ~US$13/t ore processed
General and administrative costs ~US$10/t ore processed
Other operating unit costs ~US$23/t ore processed (incl. royalties)
Operating unit costs ~US$81/t ore processed
Zinc equivalent operating unit cost ~(US$0.71/lb) ZnEq (incl. lead and silver credits)
All-in sustaining cost [footnote 11] ~(US$0.05)/lb ZnEq (incl. lead and silver credits)
Fiscal terms
Corporate tax rate [footnote 14] ~26%
Royalties Average 2.4% private net smelter royalties
Clark Deposit SCOPING STUDY
Clark is a manganese-zinc-silver oxide deposit located adjacent, and up-dip of
the Taylor Deposit, which has a Mineral Resource estimate of 55 million
tonnes, averaging 9.08% manganese, 2.31% zinc and 78 g/t silver using a NSR
cut-off of US$175/t [footnote 4] in accordance with the JORC Code. The Clark
Deposit is interpreted as the upper oxidised, manganese-rich portion of the
mineralised system, with the resource extending from near surface to a depth
of approximately 600m.
The Clark Deposit has the potential to underpin a second development at
Hermosa. We recently completed a scoping study [footnote 2] for the Clark
Deposit which has confirmed viable flowsheets to produce battery-grade
manganese, in the form of electrolytic manganese metal (EMM) or high purity
manganese sulphate monohydrate (HPMSM). Clark has advanced to a PFS for a
potential underground mine development using longhole open stoping accessed
from existing patented mining claims. The PFS is designed to increase
confidence in our technical and operating assumptions and customer
opportunities in the rapidly growing battery-grade manganese markets. The
first phase of the PFS is expected to be completed in late CY22, at which
point a preferred development pathway will be selected. Many areas of the PFS,
including mine planning, hydrogeology, infrastructure, sustainability and
permitting will benefit from work completed in the Taylor PFS.
Our study work will also review the potential to pursue an integrated
development of Taylor and Clark. An integrated development would comprise
underground mining operations for Taylor and Clark with separate processing
circuits to produce base and precious metals, and battery-grade manganese. An
integrated development has the potential to realise operating and capital
efficiencies.
Figure 5: Clark and Taylor deposits (image can be viewed in the full
announcement available on the NSM)
Regional exploration
Our third area of focus at Hermosa is unlocking value through exploration of
our highly prospective regional land package. Since our initial acquisition,
we have increased our tenure by 66%, consolidating our position in the most
prospective areas. We have completed surface geophysics, soil sampling,
mapping and other exploration activity, resulting in the definition of a
highly prospective corridor across our land package which will be prioritised
for future testing.
Within this highly prospective corridor, we plan to drill test the Flux
prospect in the second half of CY22 following the receipt of required permits.
The Flux prospect is located down-dip of an historic mining area in carbonates
that could host Taylor-like mineralisation [footnote 8]. Our ongoing
exploration strategy will focus on identifying, permitting and drilling new
exploration targets across the land package while continuing to refine our
understanding of the regional geology.
Figure 6: Regional exploration (image can be viewed in the full announcement
available on the NSM)
FOOTNOTES
1. Based on Taylor's estimated all-in sustaining costs (AISC) in the
PFS and the Wood Mackenzie Lead/Zinc Asset Profiles. AISC includes operating
unit costs (including royalties), treatment and refining charges (TCRCs), and
sustaining capital expenditure.
2. Clark Deposit scoping study cautionary statement: The scoping study
referred to in this announcement is based on low-level technical and economic
assessments and is insufficient to support estimation of Ore Reserves or to
provide assurance of an economic development case at this stage, or to provide
certainty that the conclusions of the scoping study will be realised. The
study is based on 60% Indicated and 40% Inferred Mineral Resources (refer to
footnote 4 for the cautionary statement).
3. Competent Persons Statement and cautionary statement - Exploration
Results and Exploration Target: The information in this announcement that
relates to Exploration Results and Exploration Targets for Hermosa (including
Peake) is based on information compiled by David Bertuch, a Competent Person
who is a Member of The Australasian Institute of Mining and Metallurgy and is
employed by South32. Mr Bertuch has sufficient experience that is relevant to
the style of mineralisation and type of deposit under consideration and to the
activity being undertaken to qualify as a Competent Person as defined in the
2012 Edition of the 'Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves'. Mr. Bertuch consents to the inclusion in
the report of the matters based on his information in the form and context in
which it appears. The JORC Table 1 (sections 1 and 2) related to the
Exploration Results and Exploration Targets is included in Annexure 1. In
respect of those Exploration Targets, the potential quantity and grade is
conceptual in nature. There has been insufficient exploration to determine a
Mineral Resource and there is no certainty that further exploration work will
result in the determination of Mineral Resources.
4. Mineral Resource Statements for the Taylor and Clark deposits: The
information in this announcement that relates to Mineral Resources for the
Taylor and Clark deposits is extracted from South32's FY21 Annual Report
(www.south32.net) published on 3 September 2021. The information was prepared
by a Competent Person 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 market
announcement, and that 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.
5. Resource life is estimated using Mineral Resources (extracted from
South32's FY21 Annual Report published on 3 September 2021 and available to
view on www.south32.net (http://www.south32.net) ) and Exploration Target
(details of which are available in this announcement) converted to a
run-of-mine basis using conversion factors, divided by the nominated
run-of-mine production rate on a 100% basis. Whilst South32 believes it has a
reasonable basis to reference this resource life and incorporate it within its
Production Targets, it should be noted that resource life calculations are
indicative only and do not necessarily reflect future uncertainties such as
economic conditions, technical or permitting issues. Resource life is based on
our current expectations of future results and should not be solely relied
upon by investors when making investment decisions.
6. Production Targets Cautionary Statement: The information in this
announcement that refers to the Production Target and forecast financial
information is based on Measured (20%), Indicated (62%) and Inferred (14%)
Mineral Resources and Exploration Target (4%) for the Taylor Deposit. All
material assumptions on which the Production Target and forecast financial
information is based is available in Annexure 1. The Mineral Resources
underpinning the Production Target have been prepared by a Competent Person in
accordance with the JORC Code (refer to footnote 4 for the cautionary
statement). All material assumptions on which the Production Target and
forecast financial information is based is available in Annexure 2. There is
low level of geological confidence associated with the Inferred Mineral
Resources and there is no certainty that further exploration work will result
in the determination of Indicated Mineral Resources or that the Production
Target will be realised. The potential quantity and grade of the Exploration
Target is conceptual in nature. In respect of the Exploration Target used in
the Production Target, there has been insufficient exploration to determine a
Mineral Resource and there is no certainty that further exploration work will
result in the determination of Mineral Resources or that the Production Target
itself will be realised. The stated Production Target is based on South32's
current expectations of future results or events and should not be solely
relied upon by investors when making investment decisions. Further evaluation
work and appropriate studies are required to establish sufficient confidence
that this target will be met. South32 confirms that inclusion of 18% tonnage
(14% Inferred Mineral Resources and 4% Exploration Target) is not the
determining factor of the project viability and the project forecasts a
positive financial performance when using 82% tonnage (20% Measured and 62%
Indicated Mineral Resources). South32 is satisfied, therefore, that the use of
Inferred Mineral Resources and Exploration Target in the Production Target and
forecast financial information reporting is reasonable.
7. Preferred case design capacity based on Taylor PFS outcomes.
8. Flux Exploration Target: The information in this announcement that
relates to the Exploration Target for Flux is extracted from "South32 Strategy
and Business Update" published on 18 May 2021 and is available to view on
www.south32.net. The information was prepared by a Competent Person 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 market announcement. 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.
9. Payable zinc equivalent was calculated by aggregating revenues
from payable zinc, lead and silver, and dividing the total revenue by the
price of zinc. Average metallurgical recovery assumptions are 90% for zinc,
91% for lead and 81% for silver in lead concentrate. FY21 average index prices
for zinc (US$2,695/t), lead (US$1,992/t) and silver (US$25.50/oz) (excluding
treatment and refining charges) have been used.
10. Based on steady state production years (FY30 to FY44).
11. AISC includes Operating unit costs (including royalties), TCRCs and
sustaining capital expenditure.
12. Lead and silver credits are calculated using FY21 average index prices
for lead (US$1,992/t) and silver (US$25.50/oz).
13. South32 is a founding member of the Electric Mine Consortium, which
aims to accelerate progress towards a fully electrified zero carbon, zero
particulates, mine. More information is available at www.electricmine.com
(http://www.electricmine.com) .
14. Federal tax of 21.0% and Arizona state tax of 4.9% of taxable income,
subject to applicable allowances. Hermosa has an opening tax loss balance of
approximately US$83M as at 30 June 2020. Property and severance taxes are also
expected to be paid. Based on the PFS schedule, we expect to commence paying
income taxes from FY29.
About us
South32 is a globally diversified mining and metals company. 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 produce bauxite, alumina,
aluminium, metallurgical coal, manganese, nickel, silver, lead and zinc at our
operations in Australia, Southern Africa and South America. With a focus on
growing our base metals exposure, we also have two development options in
North America and several partnerships with junior explorers around the world.
Investor Relations
Alex Volante Tom Gallop
T +61 8 9324 9029
T +61 8 9324 9030
M +61 403 328 408
M +61 439 353 948
E Alex.Volante@south32.net (mailto:Alex.Volante@south32.net)
E Tom.Gallop@south32.net
Media Relations
James Clothier Jenny White
M +61 413 391 031
T +44 20 7798 1773
E James.Clothier@south32.net
M +44 7900 046 758
(mailto:James.Clothier@south32.net)
E Jenny.White@south32.net
Further information on South32 can be found at www.south32.net
(http://www.south32.net) .
Approved for release by Graham Kerr, Chief Executive Officer
JSE Sponsor: UBS South Africa (Pty) Ltd
17 January 2022
Forward-looking statements
This release contains 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 release, 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 release. 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. South32 cautions against reliance on any forward looking
statements or guidance, particularly in light of the current economic climate
and the significant volatility, uncertainty and disruption arising in
connection with COVID-19.
Annexure 1: JORC Code Table 1
Hermosa Project - Exploration results
The following table provides a summary of important assessment and reporting
criteria used for the reporting of Taylor sulphide exploration results for the
Hermosa project, which is located in southern Arizona, USA (Figure 1), in
accordance with the Table 1 checklist in The Australasian Code for the
Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC
Code, 2012 Edition) on an 'if not, why not' basis.
Section 1 Sampling Techniques and Data
(Criteria in this section apply to all succeeding sections.)
Criteria Commentary
Sampling techniques · The drilling that supports the exploration results is located outside
of the current Taylor Mineral Resource estimate declared as at 30 June 2021 in
the South32 Annual Report.
A total of 53 diamond drill holes (HQ/NQ) totalling 73,632 metres have been
drilled across the Taylor sulphide mineralisation. In order to define
mineralisation continuity, the drilling information used to inform the
resource is used for geological interpretation of the exploration results. In
addition, the geological model also reflects input from near-surface reverse
circulation (RC) drilling. All drilling is at predominantly 1.5m (5')
intervals on a half core basis.
· A heterogeneity study is yet to be concluded to determine sample
representivity.
· Core is competent and sample representivity is monitored using
predominantly quarter or half core field duplicates submitted at a rate of
approximately 1:40 samples. Field duplicates located within mineralisation
envelopes demonstrate 70-90% performance to within 30% of original sample
splits.
· Core assembly, interval mark-up, recovery estimation (over the 3m
drill string) and photography all occur prior to sampling and follow
documented procedures.
· Sample size reduction during preparation involves crushing and
splitting of HQ (95.6mm) or NQ (75.3mm) half-core.
Drilling techniques · Data used for exploration results is based on logging and sampling
of HQ diamond core, reduced to NQ in areas of difficult drilling. Triple and
split-tube drilling methods were also employed in cases where conditions
required these mechanisms to improve recovery.
· All drill core has been oriented using the Boart Longyear
'Trucore' system since mid-August 2018. In Q3 FY20, acoustic televiewer data
capture was implemented for downhole imagery for the majority of drilling to
improve orientation and geotechnical understanding. Structural measurements
from oriented drilling have been incorporated in geological modelling to
assist with fault interpretation.
Drill sample recovery · Prior to October 2018, core recovery was determined by summation
of individual core pieces within each 3m drill string. Recovery for the drill
string has since been measured after oriented core alignment and mark-up.
· Core recovery is recorded for all diamond drill holes. Recovery of
holes for the ranging and targeting exercise exceeds 96%.
· Poor core recovery can occur when drilling overlying oxide material
and in major fault zones. To maximise recovery, drillers vary speed, pressure
and composition of drilling muds, reduce HQ to NQ core size and use triple
tube and '3 series' drill bits.
· When core recovery is compared to Zn, Pb and Ag grades for both a
whole data set and within individual lithology, there is no discernible
relationship.
· Correlation analysis suggests there is no relationship between core
recovery and depth except where structure is considered. There are isolated
cases where lower recovery is localised at intersections of the Taylor
sulphide carbonates with a major thrust structure.
Logging · The entire length of core is photographed and logged for lithology,
alteration, structure, rock quality designation (RQD), and mineralisation.
· Logging is both quantitative and qualitative; there are a number of
examples including estimation of mineralisation percentages and association of
preliminary interpretative assumptions with observations.
· All logging is peer reviewed against core photos and in the
context of current geological interpretation and surrounding drill holes
during geological model updates.
· Logging is to a level of detail to support the exploration
results.
Sub-sampling techniques and sample preparation · Sawn half core and barren whole core samples are taken on
predominantly 1.5m intervals for the entire drill hole after logging.
Mineralisation is highly visual. Sampling is also terminated at
litho-structural and mineralogical boundaries to reduce the potential for
boundary/dilution effects at a local scale.
· Sample lengths can vary between 0.75m and 2.3m. The selection of the
sub-sample size is not supported by sampling studies.
· Sample preparation has occurred offsite at an ISO17025-certified
laboratory since the Taylor sulphide deposit discovery. This was initially
undertaken by Skyline until 2012, then by Australian Laboratory Services
(ALS). Samples submitted to ALS are generally 4-6kg in weight. Sample size
reduction during preparation involves crushing of HQ (95.6mm) or NQ (75.3mm)
half or whole core, splitting of the crushed fraction, pulverisation, and
splitting of the sample for analysis. A detailed description of this process
is as follows:
o The entire half or whole core samples are crushed and rotary split in
preparation for pulverisation. Depending on the processing facility, splits
are done via riffle or rotary splits for pulp samples.
o Fine crushing occurs until 70% of the sample passes 2mm mesh. A 250g split
of finely crushed sub-sample is obtained via rotary or riffle splitter and
pulverised until 85% of the material is less than 75µm. These 250g pulp
samples are taken for assay, and 0.25g splits are used for digestion.
· ALS protocol requires 5% of samples to undergo a random
granulometry QC test. Samples are placed on 2 micron sieve and processed
completely to ensure the passing mesh criteria is maintained. Pulps undergo
similar tests with finer meshes. Results are loaded to an online portal for
review to client.
· Sample preparation precision is also monitored with blind
laboratory duplicates assayed at a rate of 1:50 submissions.
· Coarse crush preparation duplicate pairs show that 80% of all Zn and
Ag pairs for sulphide mineralisation report within +/-20% of original samples.
Performance drops off for Pb mineralisation, with less than 70% of duplicates
reporting within the +/-20% limits.
· More than 85% of pulp duplicates report within a 10% variance for Zn
and Ag within all pulp duplicates. Performance for Pb is demonstrably poorer,
similar to the preparation duplicates, with less than 80% of all pulp
duplicates reporting within this tolerance.
· Sub-sampling techniques and sample preparation are adequate for
providing quality assay data for declaring exploration results but will
benefit from planned studies to optimise sample selectivity and quality
control procedures.
Quality of assay data and laboratory tests · Samples of 0.25g from pulps are processed at ALS Vancouver using
ME-ICP61, where these are totally digested using a four-acid method followed
by analysis with a combination of Inductively Coupled Plasma - Mass
Spectrometry (ICP-MS) and Inductively Coupled Plasma - Atomic Emission
Spectroscopy (ICP-AES) determination for 33 elements. Overlimit values for Ag,
Pb, Zn, and Mn utilise OG-62 analysis. In November 2020, Hermosa switched to
the analytical method ME-MS61 for the four acid 48 element assay for
additional elements and improved detection limits alongside the addition of
overlimit packages of S-IR07 for S and ME-ICP81 for Mn. Digestion batches of
36 samples plus four internal ALS control samples (one blank, two CRM, and one
duplicate) are processed using a four-acid digestion. Analysis is done in
groups of three larger digestion batches. Instruments are calibrated for each
batch prior to and following the batch.
· ALS internal QA/QC samples are continuously monitored for
performance. In the case of a blank failure, for example, the entire batch is
redone from the crushing stage. If one CRM fails, data reviewers internal to
ALS examine the location of the failure within the batch and determine how
many samples around the failure should be reanalysed. If both CRMs fail, the
entire batch is rerun. No material failures have been observed from the data.
· Coarse and fine-grained certified silica blank material
submissions, inserted at the beginning and end of every work order of
approximately 200 samples, indicate a lack of systematic sample contamination
in sample preparation and ICP solution carryover. While systematic
contamination issues are not observed for the blanks, the nature of the blanks
themselves and suitability for use in QA/QC for polymetallic deposits is in
question.
o Failures for blanks are noted at greater than ten times detection limit or
recommended upper limit for the certified blank material for each analyte,
failures range from 0% for Ag (>5ppm), 1% for Cu (>10ppm), 3.5% for Pb
(>20ppm), and 7.5% for Zn (>20ppm), and indicate that the blanks
themselves are not truly suited for polymetallic deposits. In particular, a
coarse blank submitted from 2017-2018 demonstrated consistent contamination
above detection limits for Zn, Cu, Mn, and other elements. This has since been
replaced with a better performing coarse blank of the end of 2018.
o The nature of the blanks and the failures observed are very low for Ag and
Cu, and failures for blanks for Zn and Pb are in the hundreds of ppm. No
consistent bias has been observed and the magnitude of impacts at the low end
for the blanks are very limited. It is not likely to impact the exploration
results.
· A range of certified reference materials (CRM) are submitted at a
rate of 1:40 samples to monitor assay accuracy. The CRM failure rate is very
low, ranging from 0.1% to 1.3% depending on analyte, demonstrating reliable
laboratory accuracy.
· External laboratory pulp duplicates and CRM checks have been
submitted to the Inspectorate (Bureau Veritas) laboratory in Reno from
November 2017 to 2018 and resumed in March 2021 at a rate of 1:100 to monitor
procedural bias. Between 84% and 89% of samples for Zn, Pb and Ag were within
expected tolerances of +/-20% when comparing three-acid (Inspectorate) and
four-acid (ALS) digest methods. No significant bias was determined.
· The nature and quality of assaying and laboratory procedures are
appropriate for supporting disclosure of exploration results.
Verification of sampling and assaying · Core photos of the entire hole are reviewed by alternative company
personnel (modelling geologists) to verify significant intersections and
finalise geological interpretation of core logging.
· Sampling is recorded digitally and uploaded to an Azure SQL
project customised database (Plexer) via an API provided by the ALS laboratory
and the external laboratory information management system (LIMS). Digital
transmitted assay results are reconciled upon upload to the database.
· No adjustment to assay data has been undertaken.
Location of data points · Drill hole collar locations are surveyed by registered surveyors
using a GPS Real Time Kinematic (RTK) rover station correlating with the
Hermosa project RTK base station and Global Navigation Satellite Systems with
up to 1cm accuracy.
· Downhole surveys prior to mid-August 2018 were taken with a
'TruShot' single shot survey tool every 76m and at the bottom of the hole.
From 20 June 2018 to 14 August 2018, surveys were taken at the same interval
with both the single shot and a Reflex EZ-Gyro, before the Reflex EZ-Gyro was
used exclusively.
· The Hermosa project uses the Arizona State Plane (grid) Coordinate
System, Arizona Central Zone, International Feet. The datum is NAD83 with the
vertical heights converted from the ellipsoidal heights to NAVD88 using
GEOID12B.
· All drill hole collar and downhole survey data was audited
against source data.
· Survey collars have been compared against a one-foot topographic
aerial map. Discrepancies exceeding 1.8m were assessed against a current
aerial flyover and the differences attributed to surface disturbance from
construction development and/or road building.
· Survey procedures and practices result in data location accuracy
suitable for mine planning.
Data spacing and distribution · Drill hole spacing ranges from 60m to 600m. The spacing supplies
sufficient information for assessment of exploration results.
· Geological modelling has determined that drill spacing is sufficient
to establish the degree of geological and grade continuity necessary to
support review of exploration results.
Orientation of data in relation to geological structure · For geological modelling, mineralisation varies in dip between
30°NW in the upper Taylor Sulphide domain and between 20°N and 30°N in the
lower Taylor Deeps and the Peake Copper-Skarn prospect. Most drilling is
oriented vertically and at a sufficiently high angle to allow for accurate
representation of grade and tonnage using three-dimensional modelling methods.
· There is indication of sub-vertical structures, possibly conduits
for or offsetting mineralisation, which have been accounted for at a regional
scale through the integration of mapping and drilling data. Angled, oriented
core drilling introduced from October 2018 is designed to improve
understanding of the relevance of these structures to mineralisation.
Sample security · Samples are tracked and reconciled through a sample numbering and
dispatch system from site to the ALS sample distribution and preparation
facility in Tucson. The ALS LIMS assay management system provides an
additional layer of sample tracking from the point of sample receipt. Movement
of sample material from site to the Tucson distribution and preparation
facility is a combination of ALS dedicated transport and project contracted
transport. Distribution to other preparation facilities and Vancouver is
managed by ALS dedicated transport.
· Assays are reconciled and results processed in an Azure SQL project
customised database (Plexer) which has password and user level security.
· Core is stored in secured onsite storage prior to processing. After
sampling, the remaining core, returned sample rejects and pulps are stored at
a purpose-built facility that has secured access.
· All sampling, assaying and reporting of results are managed with
procedures that provide adequate sample security.
Audits or reviews · CSA Global audited the sampling methodology and database for the
FY21 Mineral Resource estimate and noted that the sampling and QA/QC measures
showed the database to be adequate.
· An internal database audit was undertaken in February 2019 for
approximately 10% of all drilling intersecting sulphide mineralisation (24 of
242 holes). Data was validated against original data sources for collar,
survey, lithology, alteration, mineralisation, structure, RQD and assay (main
and check assays). The overall error rates across the database were found to
be very low. Isolated issues included the absence of individual survey
intervals and minor errors in collar survey precision. All were found to have
minimal impact on resource estimation.
· Golder and Associates completed an independent audit of the
exploration results including QA/QC of reported drillholes outside the FY21
Taylor Sulphide Mineral Resource estimate, adherence to the Resource Range
Analysis process, inputs, assumptions and outcomes. Outcomes are considered
appropriate for public reporting of exploration results.
Section 2 Reporting of Exploration Results
(Criteria listed in the preceding section also apply to this section.)
Criteria Commentary
Mineral tenement and land tenure status · The Hermosa project mineral tenure (Figure 2) is secured by 30
patented mining claims totalling 228 hectares that have full surface and
mineral rights owned fee simple. These claims are retained in perpetuity by
annual real property tax payments to Santa Cruz County in Arizona and have
been verified to be in good standing until 31 August 2022.
· The patented land is surrounded by 1,957 unpatented lode mining
claims totalling 13,804 hectares. These claims are retained through payment of
federal annual maintenance fees to the Bureau of Land Management (BLM) and
filing record of payment with the Santa Cruz County Recorder. Payments for
these claims have been made for the period up to their annual renewal on or
before 1 September 2022.
· Title to the mineral rights is vested in South32's wholly owned
subsidiary Arizona Minerals Inc. (AMI). No approval is required in addition to
the payment of fees for the claims.
Exploration done by other parties · ASARCO LLC (ASARCO) acquired the Property in 1939 and completed
intermittent drill programs between 1940 and 1991. ASARCO initially targeted
silver and lead mineralisation near historical workings of the late 19th
century. ASARCO identified silver-lead-zinc bearing manganese oxides in the
manto zone of the overlying Clark Deposit between 1946 and 1953.
· Follow-up rotary air hammer drilling, geophysical surveying,
detailed geological, and metallurgical studies on the manganese oxide manto
mineralisation between the
mid-1960s and continuing to 1991 defined a heap leach amenable, low-grade
manganese and silver resource, reported in 1968 and updated in 1975, 1979 and
1984. The ASARCO drilling periods account for 98 drill holes from the
database.
· In March 2006, AMI purchased the ASARCO property and completed a
re-assay of pulps and preliminary SO2 leach tests on the manto mineralisation
to report a
Preliminary Economic Assessment (PEA) in February 2007. Drilling of RC and
diamond holes between 2006 and 2012 focused on the Clark Deposit (235 holes)
and early definition of the Taylor Deposit sulphide mineralisation (16 holes),
first intersected in 2010. Data collected from the AMI 2006 campaign is the
earliest information contributing to estimation of the Taylor Deposit Mineral
Resource.
· AMI drill programs between 2014 and August 2018 (217 diamond
holes) focused on delineating Taylor Deposit sulphide mineralisation, for
which Mineral Resource estimates were reported in compliance to NI 43-101
(Foreign Estimate) in November 2016 and January 2018.
Geology · The regional geology is set within Lower-Permian carbonates,
underlain by Cambrian sediments and Proterozoic granodiorites. The carbonates
are unconformably overlain by Triassic to late-Cretaceous volcanic rocks
(Figures 3 and 4). The regional structure and stratigraphy are a result of
late-Precambrian to early-Palaeozoic rifting, subsequent widespread
sedimentary aerial and shallow marine deposition through the Palaeozoic Era,
followed by Mesozoic volcanism and late batholitic intrusions of the Laramide
Orogeny. Mineral deposits associated with the Laramide Orogeny tend to align
along regional NW structural trends.
· Cretaceous-age intermediate and felsic volcanic and intrusive
rocks cover much of the Hermosa project area and host low-grade disseminated
silver mineralisation, epithermal veins and silicified breccia zones that have
been the source of historic silver and lead production.
· Mineralisation styles in the immediate vicinity of the Hermosa
project include the carbonate replacement deposit (CRD) style zinc-lead-silver
base metal sulphides of the Taylor Deposit and deeper skarn-style
copper-zinc-lead-silver base metal sulphides of the Peake prospect and an
overlying manganese-silver oxide manto deposit of the Clark Deposit.
· The Taylor Deposit comprises the overlying Taylor Sulphide, and Taylor
Deeps domains that are separated by a thrust fault. Approximately 600-750m
lateral and south to the Taylor Deeps domain, the Peake copper-skarn sulphide
mineralisation is identified in older lithological stratigraphic units along
the interpreted continuation of the thrust fault (Figures 5 and 6).
· The Taylor Sulphide Deposit extends to a depth of around 1,000m
and is hosted within approximately a 450m thickness of Palaeozoic carbonates
that dip 30°NW, identified as the Concha, Scherrer and Epitaph Formations.
· Taylor Sulphide mineralisation is dominantly constrained within a
tilted and thrusted carbonate stratigraphy and to a lesser degree the
overlying volcanic stratigraphy. The mineralising system is yet to be fully
drill tested in multiple directions. At Taylor, the sulphide mineralisation
is constrained up-dip where it merges into the overlying oxide manto
mineralisation of the Clark Deposit, representing a single contiguous
mineralising system.
· The north-bounding edge of the thrusted carbonate rock is marked by
a thrust fault where it ramps up over the Jurassic/Triassic 'Older Volcanics'
and 'Hardshell Volcanics'. This interpreted pre-mineralising structure that
created the sequence of carbonates also appears to be a key mineralising
conduit. The thrust creates a repetition of the carbonate formations below the
Taylor Sulphide domain, which host the Taylor Deeps mineralisation.
· The Taylor Deeps mineralisation dips 10°N to 30°N, is
approximately 100m thick, and primarily localised near the upper contact of
the Concha Formation and the unconformably overlying 'Older Volcanics'. Some
of the higher-grade mineralisation is also accumulated along a westerly
plunging lineation intersection where the Concha Formation contacts the Lower
Thrust. Mineralisation has not been closed off down-dip or along strike.
· Lateral to the Taylor Deeps mineralisation, skarn sulphide
mineralisation is identified in older lithological stratigraphic units along
the interpreted continuation of the thrust fault. This creates an interpreted
continuous structural and lithological controlled system from the deeper skarn
Cu domain into Taylor Deeps, Taylor Sulphide, and associated volcanic hosted
mineralisation and the Clark oxide Deposit.
Drill hole Information · A drill hole plan (Figure 4) provides a summary of drilling
collar locations that support the exploration results and surface geology.
Figure 5 provides a drill hole plan relative to the Taylor FY21 and Clark FY20
Mineral Resource domains, and the Peake copper-skarn prospect. Figure 6 shows
a cross section relative to key inputs in Figure 5 alongside the Taylor thrust
and simplified geology.
· Table 1 summarises all the drill holes that support Exploration
Targets.
· Table 2 summarises all significant intersections.
· All drill hole information, including tabulations of drill hole
positions and depths is stored within project data files on a secure company
server.
· Hole depths vary between 550m and 2,000m.
Data aggregation methods · Mineralisation domains were created within bounding litho-structural
zones using both manually interpreted volumes and Radial Based Function (RBF)
indicator interpolation of the cumulative in-situ value of metal content. The
metal content descriptor, "Metval", is calculated by summing the
multiplication of economic analyte grades for Zn, Pb, Ag and Cu, price and
recovery. Metval cut-off ranges for mineralisation domains range from US$5-7.5
for the different litho-structural domains. Material above the Metval cut-off
was modelled utilising the indicator numerical model function in Leapfrog
Geo TM to create volumes.
· Significant assay intercepts are reported as length-weighted
averages exceeding either 2% ZnEq or 0.2% Cu.
· No top cuts are applied to intercept calculations.
· ZnEq (%) is zinc equivalent which accounts for combined value of
zinc, lead and silver. Metals are converted to ZnEq via unit value
calculations using long term consensus metal price assumptions and relative
metallurgical recovery assumptions. For the Exploration Target, overall
metallurgical recoveries differ for geological domains and vary from 87% to
94% for zinc, 94% to 95% for lead, and 87% to 92% for silver. Exploration
Target tonnage and grade is reported above an NSR that accounts for payability
of metals in concentrate products, which depending on other factors, may
decrease the total payable recovered metal. Average payable metallurgical
recovery assumptions are zinc (Zn) 90%, lead (Pb) 91%, and silver (Ag) 81% and
metals pricing assumptions are South32's prices for the December 2021
quarter. The formula used for calculation of zinc equivalent is ZnEq = Zn
(%) + 0.718 * Pb (%) + 0.0204 * Ag (g/t).
Relationship between mineralisation widths and intercept lengths · Near vertical drilling (75-90(0)) amounts to the majority of holes
used in the creation of the geology model. Where they intersect the low to
moderately dipping (30°) stratigraphy the intersection length can be up to
15% longer than true-width.
· Since August 2018, drilling has been intentionally angled, where
appropriate, between 60° and 75° to maximise the angle at which
mineralisation is intersected.
· The mineralisation is modelled in 3D to appropriately account for
sectional bias or apparent thickness issues which may result from 2D
interpretation.
Diagrams · Relevant maps and sections are included with this market
announcement.
Balanced reporting · Exploration results are reported considering drill holes completed
outside the disclosed Mineral Resource estimate as at 30 June 2021. All drill
hole intersections are considered in this assessment for balanced reporting. A
list of drill holes is included as an annexure to this announcement.
Other substantive exploration data · Aside from drilling, the geological model is compiled from local
and regional mapping, geochemistry sampling and analysis, and geophysical
surveys.
· Magneto-telluric (MT) and induced polarisation surveys (IP) were
conducted with adherence to industry standard practices by Quantec Geosciences
Inc. In most areas, the MT stations were collected along N-S lines with a
spacing of 200m. Spacing between lines is 400m. Some areas were collected at
400m spacing within individual lines. IP has also been collected, both as 2D
lines and as 2.5D swaths, collected with a variable spacing of data receivers.
IP surveying is ongoing over the project.
· Quality control of geophysical data includes using a third-party
geophysical consultant to verify data quality and provide secondary inversions
for comparison to Quantec interpretations.
Further work · The following work is planned to be conducted:
o The deeper Peake Copper-skarn prospect will be assessed in detail.
o Additional drilling of the Peake Copper-skarn prospect is planned to occur
in CY22, guided by the outcomes of a detailed assessment in the area adjacent
to Taylor Deeps where very little drilling is completed so far.
o Additional ongoing drilling will assess Taylor and Taylor Deeps
extensional opportunities.
o Exploratory drilling underneath and downdip of the historic mine workings
at the Flux prospect is planned to occur in CY22, pending permit approvals.
o Additional geophysics over the project is ongoing.
Figure 1: Regional location plan (image can be viewed in the full announcement
available on the NSM)
Figure 2: Hermosa project tenement map (image can be viewed in the full
announcement available on the NSM)
Figure 3: Hermosa project regional geology (image can be viewed in the full
announcement available on the NSM)
Figure 4: Taylor Deposit local geology and Exploration Target collar locations
(image can be viewed in the full announcement available on the NSM)
Figure 5: Plan view of the Taylor and Clark Mineralisation Domains with
exploration drill holes and the Peake Copper-Skarn Prospect (image can be
viewed in the full announcement available on the NSM)
Figure 6: Cross-section through the Taylor and Clark mineralisation domains
showing exploration drill holes, simplified geology, Taylor Thrust and the
Peake Copper-Skarn Prospect - looking east (image can be viewed in the full
announcement available on the NSM)
Table 1: Hole ID, collar location, dip, azimuth and drill depth
Hole ID East (UTM) North (UTM) Elevation (m) Dip Azimuth TD Depth (m)
HDS-345 525881 3480733 1603.2 -90 0 1257.9
HDS-353 525781 3480612 1592.8 -90 0 1701.5
HDS-372 526061 3481515 1564.6 -90 0 1780.9
HDS-380 526689 3480757 1580.8 -60 230 1321.9
HDS-395 525553 3482168 1502.4 -90 0 1642.0
HDS-420 525785 3480607 1592.8 -82 85 1372.8
HDS-428 526180 3481454 1578.1 -75 355 1633.6
HDS-443 526645 3480958 1525.9 -45 230 492.9
HDS-444 526347 3481088 1566.2 -65 230 825.1
HDS-451 526182 3481448 1579.4 -75 230 656.7
HDS-462 526223 3481409 1574.6 -75 230 792.8
HDS-465 526268 3481353 1569.8 -75 230 827.2
HDS-486 527398 3480552 1602.0 -75 85 1142.1
HDS-490 527406 3480648 1593.8 -60 70 1126.8
HDS-491 525690 3482016 1501.9 -90 0 1595.0
HDS-509 525701 3480691 1602.1 -90 0 1424.8
HDS-519 525822 3480685 1602.0 -90 0 1422.2
HDS-520 525963 3480611 1573.1 -90 0 1562.7
HDS-524 526002 3479665 1658.8 -90 0 1220.0
HDS-526 528068 3479975 1571.1 -65 15 1617.6
HDS-527 526339 3480706 1542.5 -63 125 1288.4
HDS-528 525716 3480747 1610.3 -90 0 1724.3
HDS-530 525583 3480735 1604.3 -82 230 1446.9
HDS-532 526001 3479666 1659.1 -60 150 1075.9
HDS-533 526092 3480386 1627.3 -65 120 1257.6
HDS-535 526026 3479462 1678.1 -60 190 1419.8
HDS-536 527211 3480625 1567.4 -60 0 1206.1
HDS-538 525878 3480741 1603.3 -70 130 1526.1
HDS-540 526101 3480387 1627.3 -70 220 1528.9
HDS-542 527211 3480624 1567.1 -70 0 1574.0
HDS-545 525960 3479775 1665.7 -60 335 1427.1
HDS-549 525585 3480738 1604.4 -78 200 1813.0
HDS-551 525963 3479774 1665.5 -75 270 1542.6
HDS-552 525806 3480620 1592.9 -70 165 1851.4
HDS-553 526860 3480624 1560.5 -75 220 1524.0
HDS-554 526992 3480642 1550.9 -65 35 1314.9
HDS-557 525963 3479776 1665.5 -60 300 1199.1
HDS-569 526861 3480630 1560.3 -62 205 900.1
HDS-571 526868 3480782 1543.4 -66 45 961.0
HDS-598 527348 3480633 1606.7 -75 333 1287.9
HDS-605 526678 3480806 1575.7 -66 185 1468.4
HDS-627 525814 3481856 1502.2 -60 20 1891.9
HDS-661 525782 3480619 1593.6 -72 179 1981.2
HDS-662 525782 3480619 1593.6 -76 190 1985.2
HDS-663 525592 3480733 1603.6 -70 175 1980.6
HDS-668 525817 3481856 1502.4 -60 20 1905.0
HDS-691 525592 3480734 1603.9 -68 180 2079.0
HDS-711 526863 3480628 1560.2 -55 218 776.3
HDS-714 527351 3480641 1606.2 -52 73 1184.8
HDS-715 527404 3480509 1607.7 -65 75 817.2
HDS-717 525592 3480735 1603.9 -70 175 1782.5
HDS-763 525971 3479591 1629.9 -78 15 1943.4
HDS-797 526361 3481170 1560.0 -55 108 551.1
Table 2: Significant intersections
Hole ID From To Cut off Width Zinc Lead Silver Copper
(m) (m) (m) (%) (%) (ppm) (%)
HDS-345 No significant intersection
HDS-353 966.2 976.0 2% ZnEq 9.8 12.2 8.2 77 0.69
Includin
g
966.2 971.4 2% ZnEq 5.2 22.0 14.8 130 1.21
HDS-372 312.4 318.5 2% ZnEq 6.1 1.9 0.7 31 0.03
458.1 463.6 2% ZnEq 5.5 4.8 2.1 90 0.04
HDS-380 878.1 880.4 2% ZnEq 2.3 2.6 1.8 362 0.33
898.7 906.3 2% ZnEq 7.6 1.0 1.9 142 0.23
HDS-395 448.7 454.3 2% ZnEq 5.6 3.3 3.7 55 0.08
HDS-420 452.5 465.3 2% ZnEq 12.8 2.5 1.1 73 0.11
HDS-428 266.4 269.3 2% ZnEq 2.9 3.6 1.2 108 0.01
1507.7 1516.5 2% ZnEq 8.8 1.5 1.8 77 0.19
HDS-443 No significant intersection
HDS-444 691.0 716.6 2% ZnEq 25.6 1.4 0.7 15 0.04
Includin
g
709.3 716.6 2% ZnEq 7.3 3.1 1.2 22 0.04
790.0 793.1 2% ZnEq 3.1 2.5 1.2 273 0.00
803.1 809.5 2% ZnEq 6.4 1.5 2.1 69 0.18
HDS-451 351.1 363.3 2% ZnEq 12.2 1.4 0.5 13 0.00
Includin
g
357.8 363.3 2% ZnEq 5.5 1.9 0.8 17 0.01
HDS-462 428.9 432.2 2% ZnEq 3.4 0.9 1.3 48 0.06
HDS-465 322.6 335.6 2% ZnEq 13.0 1.0 0.4 71 0.09
HDS-486 118.0 131.7 2% ZnEq 13.7 0.1 0.9 64 0.04
155.4 189.6 2% ZnEq 34.1 0.1 0.6 86 0.09
Includin
g
169.8 189.6 2% ZnEq 19.8 0.1 1.0 101 0.15
249.8 290.9 2% ZnEq 41.1 1.1 1.9 57 0.09
HDS-490 191.1 197.2 2% ZnEq 6.1 0.1 0.4 77 0.08
364.8 401.4 2% ZnEq 36.6 0.1 1.1 69 0.04
Includin
g
379.5 399.9 2% ZnEq 20.4 0.1 1.6 97 0.05
442.6 450.2 2% ZnEq 7.6 5.4 0.0 4 0.00
HDS-491 381.9 400.8 2% ZnEq 18.9 13.1 8.3 137 0.39
Includin
g
387.1 399.1 2% ZnEq 12.0 17.3 11.5 171 0.42
HDS-509 846.4 851.0 2% ZnEq 4.6 1.4 0.7 21 0.10
HDS-519 389.2 393.8 2% ZnEq 4.6 0.3 0.3 688 0.33
731.5 736.1 2% ZnEq 4.6 3.1 1.6 32 0.10
HDS-520 684.9 689.3 2% ZnEq 4.4 2.7 1.6 39 0.37
694.9 704.4 2% ZnEq 9.4 1.7 1.7 25 0.08
1049.0 1053.7 2% ZnEq 4.7 1.5 1.7 37 0.37
HDS-524 No significant intersection
HDS-526 46.3 52.7 2% ZnEq 6.4 0.0 0.1 100 0.01
61.3 84.4 2% ZnEq 23.2 0.0 0.3 113 0.03
HDS-527 191.1 200.3 2% ZnEq 9.1 1.2 0.9 23 0.00
HDS-528 No significant intersection
HDS-530 840.3 846.4 0.2% Cu 6.1 0.1 0.0 13 0.59
904.3 910.4 0.2% Cu 6.1 0.3 0.1 14 0.39
1407.6 1419.1 2% ZnEq 11.6 1.8 1.1 68 0.24
HDS-532 76.5 83.8 2% ZnEq 7.3 1.3 0.8 193 0.15
HDS-533 No significant intersection
HDS-535 No significant intersection
HDS-536 No significant intersection
HDS-538 1445.4 1451.9 2% ZnEq 6.6 0.1 1.2 74 0.03
HDS-540 1279.2 1389.0 0.2% Cu 109.7 0.1 0.3 15 0.62
Includin
g
1303.6 1309.7 0.2% Cu 6.1 0.2 0.4 61 3.48
1469.7 1488.0 0.2% Cu 18.3 0.0 0.0 10 0.63
HDS-542 128.6 133.2 2% ZnEq 4.6 0.0 0.5 80 0.03
800.3 809.9 2% ZnEq 9.6 0.8 0.8 30 0.00
HDS-545 No significant intersection
HDS-549 1169.5 1175.6 0.2% Cu 6.1 1.5 1.6 312 1.92
HDS-551 1100.6 1111.6 0.2% Cu 11.0 0.0 0.2 10 0.39
1254.9 1280.8 0.2% Cu 25.9 0.0 0.0 10 0.54
1294.5 1372.8 0.2% Cu 78.3 0.0 0.1 10 0.51
HDS-552 709.3 714.8 0.2% Cu 5.5 11.2 5.5 64 0.12
1265.8 1273.9 0.2% Cu 8.1 0.2 0.5 27 0.39
1308.2 1384.7 0.2% Cu 76.5 0.2 0.4 25 1.52
Includin
g
1309.9 1328.6 0.2% Cu 18.8 0.1 0.2 40 2.77
And
1364.3 1384.7 0.2% Cu 20.4 0.1 0.3 37 2.44
Includin
g
1375.3 1384.7 0.2% Cu 9.5 0.1 0.3 62 4.45
1478.9 1484.8 0.2% Cu 5.9 1.0 1.5 57 0.41
HDS-553 315.8 340.5 2% ZnEq 24.7 3.4 3.3 266 0.32
Includin
g
315.8 325.2 2% ZnEq 9.4 3.9 8.5 654 0.81
332.8 340.5 2% ZnEq 7.6 5.8 0.1 40 0.03
HDS-554 181.7 197.8 2% ZnEq 16.2 0.4 5.8 139 0.06
1138.3 1140.9 2% ZnEq 2.6 3.9 6.4 152 0.03
HDS-557 No significant intersection
HDS-569 142.3 147.2 2% ZnEq 4.9 3.6 2.4 61 0.03
HDS-571 134.4 166.4 2% ZnEq 32.0 0.7 0.8 94 0.12
691.6 698.9 2% ZnEq 7.3 4.7 3.4 56 0.14
743.3 750.7 2% ZnEq 7.5 7.6 18.5 296 0.11
HDS-598 No significant intersection
HDS-605 447.1 452.9 2% ZnEq 5.8 2.6 0.9 116 0.19
512.2 531.6 2% ZnEq 19.4 0.2 1.2 51 0.08
842.5 845.8 2% ZnEq 3.4 2.1 2.4 196 0.30
HDS-627 349.9 354.5 2% ZnEq 4.6 15.2 14.9 459 0.21
HDS-661 1298.4 1305.2 2% ZnEq 6.7 0.6 3.4 249 0.89
1322.2 1374.6 0.2% Cu 52.4 0.1 1.1 105 1.73
Includin
g
1322.2 1346.0 0.2% Cu 23.8 0.1 0.8 81 3.32
And
1322.2 1330.1 0.2% Cu 7.9 0.1 0.4 81 7.89
1386.8 1460.6 0.2% Cu 73.8 0.5 0.7 67 1.06
Includin
g
1399.6 1410.3 0.2% Cu 10.7 0.7 1.5 227 2.84
1555.1 1573.1 0.2% Cu 18.0 3.2 1.4 87 0.37
HDS-662 1316.4 1329.2 0.2% Cu 12.8 3.4 4.4 137 0.95
1540.8 1546.7 2% ZnEq 5.9 5.9 2.1 250 0.45
HDS-663 1580.1 1591.8 0.2% Cu 11.7 0.1 0.0 16 0.95
1615.9 1651.1 0.2% Cu 35.2 1.1 0.1 27 0.56
HDS-668 201.2 211.8 2% ZnEq 10.7 5.5 3.9 270 0.13
221.0 233.2 2% ZnEq 12.2 5.7 3.9 129 0.03
699.5 713.2 2% ZnEq 13.7 1.3 4.2 134 0.06
HDS-691 1343.6 1353.6 2% ZnEq 10.1 3.8 3.5 61 0.47
1384.7 1395.4 0.2% Cu 10.7 2.7 2.9 38 1.03
1405.9 1415.2 0.2% Cu 9.3 0.5 0.7 11 0.26
1421.3 1452.1 0.2% Cu 30.8 0.7 0.8 22 0.59
1463.6 1509.7 0.2% Cu 46.0 0.4 0.5 21 0.43
1540.6 1549.3 0.2% Cu 8.7 0.3 0.9 51 0.61
1563.9 1581.3 0.2% Cu 17.4 0.2 0.2 23 0.55
1662.7 1677.9 0.2% Cu 15.2 2.8 1.1 155 1.19
1683.4 1692.6 2% ZnEq 9.1 1.5 0.3 45 0.13
1732.0 1735.2 2% ZnEq 3.2 6.2 0.3 107 0.18
1994.6 1997.4 2% ZnEq 2.7 1.7 0.3 54 0.08
HDS-711 150.6 153.9 2% ZnEq 3.4 1.9 1.0 244 0.34
HDS-714 372.5 377.0 2% ZnEq 4.6 0.0 1.1 87 0.04
410.6 415.1 2% ZnEq 4.6 0.0 1.2 65 0.02
627.9 632.5 2% ZnEq 4.6 2.1 3.6 111 0.06
682.8 688.8 2% ZnEq 6.1 3.0 3.9 109 0.09
HDS-715 119.5 127.4 2% ZnEq 7.9 0.0 1.7 53 0.05
167.3 196.0 2% ZnEq 28.7 3.7 0.5 176 0.23
Includin
g
172.8 180.8 2% ZnEq 8.0 7.1 1.2 218 0.71
300.1 342.3 2% ZnEq 42.2 2.1 1.8 94 0.09
Includin
g
333.3 342.3 2% ZnEq 9.0 6.8 0.7 42 0.08
563.9 575.3 2% ZnEq 11.4 3.7 3.6 188 0.16
Includin
g
565.4 571.5 2% ZnEq 6.1 4.5 5.4 290 0.19
591.3 598.9 2% ZnEq 7.6 4.7 2.1 92 0.14
780.3 787.9 2% ZnEq 7.6 0.2 0.1 96 0.01
HDS-717 1065.3 1072.4 0.2% Cu 7.2 3.5 2.7 22 0.21
1306.1 1318.3 0.2% Cu 12.2 1.8 1.8 63 0.82
1444.1 1466.7 0.2% Cu 22.6 1.7 1.7 46 1.38
Includin
g
1456.6 1466.7 0.2% Cu 10.1 0.5 1.0 78 2.57
1517.9 1522.2 2% ZnEq 4.3 3.0 1.8 49 0.03
1718.6 1727.0 0.2% Cu 8.4 1.0 0.1 39 1.99
1754.1 1763.3 2% ZnEq 9.1 1.4 0.5 42 0.13
HDS-763 1429.8 1439.6 2% ZnEq 9.8 2.3 0.1 3 0.02
HDS-797 No significant intersection
Annexure 2: Material Assumptions for the Production Target and Forecast
Financial Information
Criteria Commentary
Mineral Resource estimate for conversion to Ore Reserves · The Production Target is based on 20% Measured, 62% Indicated, 14%
Inferred Mineral Resources and 4% Exploration Target. The Mineral Resources
were declared as part of South32's Annual declaration of resources and
reserves in the Annual Report published on 3 September 2021 and is available
to view on www.south32.net (http://www.south32.net) . The details of the
Exploration Target are included in this announcement (Annexure 1).
Study status · A pre-feasibility study has been completed for the Taylor Deposit in
compliance with the AACE International Class 4 estimate standard.
· A technically achievable and economically viable mine plan has
been determined by the study team. Material Modifying Factors have been
considered and are included in this section of the report.
Cut-off parameters · Taylor is a polymetallic deposit which uses an equivalent NSR value
as a grade descriptor. NSR considers the remaining gross value of the in-situ
revenue generating elements once processing recoveries, royalties, concentrate
transport, refining costs and other deductions have been considered.
· The elements of economic interest used for cut-off determination
include silver (Ag), lead (Pb) and zinc (Zn).
· The cut-off strategy employed at Taylor is to optimise the NPV of
the operation.
· An NSR cut-off grade of US$90/tonne was used in the development
of mineable stope shapes.
Mining factors or assumptions · The mining method applied is longhole open stoping with paste
backfill. This is the preferred mining method based on a combination of
productivity, cost, resource recovery and risk of surface subsidence.
· Geotechnical recommendations based on deposit geology have been
used to develop the stope shape dimensions.
· The mining dilution is applied based on rock dilution or fill
dilution dependent on the location of the stope being mined. Dilution
factors are applied on a stope by stope basis using incremental dilution
widths applied to the stope geometry.
· The mining recovery factor is 95% and is applied to all ore
tonnes.
· Inferred Mineral Resources are incorporated into the stope designs and
contribute to the overall weighted grades and NSR of the stope. Inferred
Mineral Resources contribute approximately 14% and the Exploration Target
contributes 4% of the total planned tonnes. A risk assessment was completed
considering Inferred Mineral Resources and the Exploration Target as waste to
ensure that the Production Target and forecast financial information as stated
can be achieved. Accordingly, the Company believes it has a reasonable basis
for reporting a Production Target including those Inferred Mineral Resources
and the Exploration Target.
· Primary access to the orebody will be through a main shaft and a
ventilation shaft. Ore passes, haulage levels and ventilation raises will be
established to move material internally within the mine and provide
ventilation and cooling. Paste backfill will be produced in a surface
backfill plant and distributed underground via a backfill reticulation system.
· The proposed mining method with modifying factors applied supports a
single-stage ramp-up to the preferred development scenario of up to 4.3Mt per
annum.
Metallurgical factors or assumptions · The Taylor processing plant will consist of well-established
processing techniques. Primary crushing will be conducted underground, and
crushed ore will be hoisted to the surface. Grinding will be conducted by a
single-stage AG mill to a size suitable for flotation. Sequential flotation
will be followed by pressure filtration for concentrates and tailings.
· Metallurgical recovery is found to vary by geological domain and
recovery ranges are applied based on geologic formation. Average process
recoveries are: 90% for zinc in zinc concentrate; 91% for lead in lead
concentrate and 81% for silver in lead concentrate.
· Lead is found to occur primarily as galena and zinc is found to
occur primarily as sphalerite with small amounts of non-sulphide zinc
occurring in the geological domains close to surface. Galena and sphalerite
are coarse grained and easily liberated for effective recovery by sequential
flotation.
· Manganese occurs in relatively high concentrations in gangue and can
occur as an inclusion of sphalerite especially in the higher geological
domains. This can cause manganese in zinc concentrate to exceed penalty limits
for most smelters. No other deleterious elements are expected to exceed
penalty limits for lead or zinc concentrates.
· Metallurgical test work has been conducted using samples covering the
ore body vertically and horizontally. All metallurgical test work and the
process design have been reviewed by independent consultants.
Environmental factors or assumptions · The project consists of patented claims surrounded by the Coronado
National Forest and unpatented claims located within the surrounding Coronado
National Forest and managed by the United Sates Forest Service.
· A permitting schedule has been developed for obtaining critical
state and federal approvals.
· Waste rock generated from surface and underground excavations is
delineated into potentially acid generating (PAG) or non-acid generating (NAG)
rock. All PAG material will report to a lined facility as will most of the
NAG material, except for a limited amount that will be used for construction
material.
· The tailings storage facilities have been designed in accordance
with South32's Dam Management Standard and consistent with the International
Council on Mining and Metals (ICMM) Tailings Governance Framework, in addition
to the Australian National Committee on Large Dams (ANCOLD) guidelines.
· Tailings from processing will be filtered and stored in
purpose-built, lined, surface storage facilities or returned underground in
the form of paste backfill. An existing tailings storage facility on patented
claims will be used to store tailings from early operations.
Infrastructure · Current site activity is supported by and consists of office
buildings, core processing facilities, an existing tailings storage facility
as part of the voluntary remediation program, a water treatment plant, ponds,
road networks and laydown yards.
· Planned infrastructure will be installed to support future
operations and will consist of:
o Dual shafts
o Ventilation and refrigeration systems
o Process comminution, flotation and concentrate loadout
o Tailings filtration plant and tailings storage facilities
o Paste backfill plant
o Dewatering wells, another water treatment plant and pipelines
o Surface shops, fuel bays, wash bays and office buildings
o Powerlines and substations
o Surface stockpile bins
o Underground maintenance shops and ore/waste storage
· A site layout plan and construction schedule support the above
listed infrastructure.
Costs · The capital cost estimate is supported by sufficient engineering
scope and definition for preparation of a AACE International Class 4 estimate.
· The operating cost estimate was developed in accordance with
industry standards and South32 project requirements.
o Mining costs were calculated primarily from first principles and
substantiated by detailed labour rate calculations, vendor-provided equipment
operating costs and budgetary quotations for materials and consumables.
o Processing costs account for plant consumables/reagents, labour, power and
maintenance materials and tailings storage facility costs.
o General and administrative costs are based on current operating structures
and optimised based on industry benchmarks and fit-for-purpose sizing.
Permitting and environmental estimates are based on current permitting
timelines.
· Commodity price forecasts for silver, lead and zinc and foreign
exchange are supplied by South32 Marketing. Price assumptions reflect
South32's view on demand, supply, volume forecasts and competitor analysis.
Price protocols will not be detailed as the information is commercially
sensitive.
· Transportation charges have been estimated using information on
trucking costs, rail costs, export locations, transload capabilities and
transit time associated with moving concentrate from site to port to market.
· Treatment and Refining Charges used for the valuation are
supplied by South32 Marketing and reflect South32's view on demand, supply,
volume forecasts and competitor analysis.
· Applicable royalties and property fees have been applied using on
the current US federal and state rates.
Revenue factors · The life of operation plan derived from the pre-feasibility study
provides the mining and processing physicals such as volume, tonnes and grades
to support the valuation.
· Revenue is calculated by applying forecast metal prices and foreign
exchange rates to the scheduled payable metal. Metal payabilities are based on
contracted payability terms, typical for the lead and zinc concentrate
markets.
Market assessment · Internal price protocols reflect South32's view on demand, supply, and
stock situations including customer analysis, competitor analysis and
identification of major market windows and volume forecasts.
Economic · Economic inputs are described in the cost, revenue and
metallurgical factors commentary.
· Sensitivity analyses have been completed on metal prices,
metallurgical recoveries, mine operating costs, growth capital costs and use
of Inferred Mineral Resources and the Exploration Target to understand the
value drivers and impact on the valuation.
· The pre-feasibility study evaluated alternate cases to assess the
impact of longer than expected permitting timelines and associated capital
spend profiles.
Social · South32 maintains relationships with stakeholders in its host
communities through structured and meaningful engagement activities including:
community forums, industry involvement, employee participation, local
procurement and local employment.
· A Community Management Plan has been developed in accordance with the
South32 Community Standard and includes baseline studies, community surveys,
risk assessments, stakeholder identification, engagement plans, cultural
heritage, community investment plans, closure and rehabilitation.
Other · Hermosa has developed a comprehensive risk register and risk
management system to address foreseeable risks that could impact the project
and future operations.
· No material naturally occurring risks have been identified and
the project is not subject to any material legal agreements or marketing
arrangements.
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