REG - South32 Limited - Hermosa Project Update
09/05/2023 07:15
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RNS Number : 7178Y South32 Limited 09 May 2023
8 May 2023
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
South32 Limited (ASX / LSE / JSE: S32; ADR: SOUHY) (South32) is pleased to
advise that our 100% owned Hermosa project located in Arizona, United States,
has been confirmed by the US Federal Permitting Improvement Steering Council,
an independent federal agency, as the first mining project added to the
FAST-41 process.
To qualify for the FAST-41 process, critical infrastructure projects must meet
rigorous criteria to demonstrate benefit to the nation. Our Hermosa project is
currently the only advanced project in the United States that could supply two
federally designated critical minerals, zinc and manganese.
Including the Hermosa project on the FAST-41 dashboard is expected to create a
more efficient and transparent process, supporting the attainment of federal
permits required for the later years of our proposed development of the Taylor
and Clark deposits at Hermosa.
We now expect to complete the feasibility study for our Taylor
zinc-lead-silver deposit in the second half of CY23, as we undertake
additional engineering studies to align the mine development schedule for a
federal permitting process under FAST-41 and incorporate current market cost
estimates.
Separately, the current phase of study work for our Clark battery-grade
manganese deposit has confirmed its potential to supply battery-grade material
to the rapidly forming North American electric vehicle supply chain. Study
work will now progress to a definition phase pre-feasibility study, including
the provision of sample qualification product to potential customers with
pilot plant production having commenced in recent weeks.
Further information on the completed study work for the Clark deposit is
contained in this announcement.
South32 Chief Executive Officer Graham Kerr said: "The inclusion of Hermosa as
the first mining project added to the FAST-41 process is an important
milestone that recognises the project's potential to strengthen the domestic
supply of critical minerals in the US.
"Hermosa presents a significant opportunity to sustainably produce commodities
critical to a low-carbon future."
FAST-41 PROCESS
We are pursuing an integrated permitting strategy for our Taylor and Clark
deposits, which are both located on private lands, meaning construction and
mine development can commence with approvals from the State of Arizona.
Future development of supporting infrastructure located on unpatented lands
will require both state and federal approvals. To date we have received all
required permits to complete critical path dewatering activity, which will
enable access to both the Taylor and Clark deposits. The second water
treatment plant is progressing to schedule and budget, with commissioning
expected in June 2023.
Hermosa's addition by the US Federal Permitting Improvement Steering Council,
an independent federal agency, as the first mining project to be covered by
the FAST-41 process underlines the project's potential to provide localised,
sustainable supply of critical minerals. The US Government, working with
Hermosa, will now create a comprehensive Coordinated Project Plan, providing a
more efficient and transparent pathway for federal approvals.
CLARK SELECTION PHASE PRE-FEASIBILITY STUDY
A selection phase pre-feasibility study (PFS-S) for the Clark deposit has
successfully defined the potential for an underground mining operation,
integrated with Taylor, and a separate plant to produce high-purity manganese
sulphate monohydrate (HPMSM) for the rapidly forming electric vehicle (EV)
supply chain in North America.
The size of the Clark deposit's Mineral Resource provides the optionality to
scale production to meet the future demand profile for the North American
HPMSM market. The PFS-S has defined an option to produce ~60kt per annum of
battery-grade manganese (~185kt of HPMSM), as well as zinc and silver, over a
~60-year period (refer Annexure 1). A portion of this targeted production is
based on Inferred Mineral Resources. There is a low level of geological
confidence associated with 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 itself will be
realised. Development of the Clark deposit has the potential to deliver
attractive returns and further increase our exposure towards the commodities
critical for a low-carbon future.
Clark will now progress to further study phases alongside product
qualification of our HPMSM material with potential customers. Pilot plant
production of HPMSM has commenced and we are separately preparing to start
decline works at Clark to enable access to ore for demonstration scale
production. Our phased approach is expected to produce between 2 and 10kt per
annum of HPMSM, initially, generating product volumes to facilitate ongoing
product qualification, with the potential to scale volume to meet the needs of
end-users. Decline access will also enable the completion of additional
underground exploration activity to support further resource definition and
study phases.
An integrated, small footprint underground mine design
Clark is a manganese-zinc-silver oxide deposit which is interpreted as the
upper oxidised, manganese-rich portion of the mineralised system that hosts
the Taylor deposit. The deposit is mineralised from near surface and extends
to a depth of approximately 600 metres. The Mineral Resource for the Clark
deposit is 55Mt, averaging 9.08% manganese, 2.31% zinc and 78 g/t silver
(refer Annexure 2) 1 .
The preferred mine design in the PFS-S is a small footprint, underground
mining operation integrated with the Taylor deposit, with mine access from a
single decline. The preferred mining method is longhole open stoping with
paste backfill, which allows for a selective mining sequence. Crushed ore
would be hauled to an off-site HPMSM production facility located in Santa Cruz
County, Arizona.
Clark's co-located mining development would benefit from infrastructure that
is shared with Taylor, including civil, power and water infrastructure. We
also expect to realise operating and capital efficiencies across both
underground mining operations, including the potential to use processed
tailings from Taylor as paste backfill for Clark, further reducing surface
tailings storage requirements.
Confirmed flow sheet to produce HPMSM
The PFS-S has confirmed a preferred flowsheet to produce HPMSM, which we
consider to have wider market demand and increased payability compared to
other forms of battery-grade manganese. The preferred flowsheet design was
informed by detailed metallurgical test work, including diagnostic leach
testing of more than 120 geometallurgical samples and supported by a
mineralogy characterisation campaign of 260 variability samples.
The preferred process design in the PFS-S is a hydrometallurgical process that
produces HPMSM utilising a reductive leach and series of purification stages
prior to crystallisation, which also generates co-products of zinc sulphide
and silver doré. The ore characteristics and low impurities of the Clark
deposit make it highly amenable to leaching, which is expected to bring
efficiency and operating cost benefits.
Pilot plant scale production of our HPMSM product has commenced to validate
the PFS-S flowsheet and generate HPMSM for product feedback from customers.
Nine PQ holes (core diameter of 85mm) were drilled to collect the bulk samples
used as feedstock for the pilot plant, which will generate approximately one
tonne of HPMSM.
Potential to generate substantial local economic benefits from the sustainable
development of a new critical minerals project
Clark's proposed development is aligned with our purpose to make a difference
by developing natural resources, improving people's lives now and for
generations to come. It has the potential to strengthen the domestic supply of
critical minerals and create many new jobs in Santa Cruz County, Arizona,
where nearly 25 percent of its residents live below the poverty line. We are
working proactively with Native American tribes that have cultural ties to the
project area to preserve cultural heritage and deliver long-term
opportunities.
Development of the Clark deposit has been designed to minimise its
environmental impact, featuring a small footprint underground mine with
efficient water use and dry-stack tailings. It will be designed applying
low-carbon principles, with future study phases to evaluate options to access
renewable energy supply. These low-carbon design principles, combined with low
transport emissions due to Clark's proximity to future EV supply chains in
North America, is expected to favourably position our HPMSM product with
customers seeking to address greenhouse gas emissions throughout their supply
chains.
Ideally positioned to supply the rapidly forming North American electric
vehicle supply chain
Clark is currently the only advanced project in the US that has a visible
pathway to produce battery-grade manganese for the domestic market from
locally sourced ore.
Based on our projected EV battery demand and chemistry assumptions, we
anticipate substantial growth in demand for battery-grade manganese in North
America. Government policies that subsidise EVs are forecast to deliver a near
six-fold increase in North American EV penetration levels by 2030. Demand for
battery-grade manganese is anticipated to further benefit from the adoption of
manganese-rich chemistries that provide EV users with substantial cost,
performance and sustainable sourcing benefits.
Government policies are also incentivising the build out of battery EV supply
chains in the US including the procurement of critical minerals from domestic
sources. With the current available supply of battery-grade manganese to North
America heavily reliant on Chinese producers, the potential development of
Clark will provide a new domestic source of production to strengthen the US
supply chain.
Phased approach to grow with the market
Following our initial pilot plant campaign, a demonstration scale facility is
planned to enable production of our HPMSM product at scale for further
customer qualification. This facility is expected to be constructed on private
land in Santa Cruz County, with an initial capacity of approximately 2 to 10kt
per annum of HPMSM.
We have commenced engineering design studies for the demonstration plant to
evaluate the final capacity, location, and estimated capital costs. On our
current project schedule, the demonstration plant could be commissioned in
late CY25, subject to a final investment decision.
We are planning to construct a decline at Clark to provide access to the ore
required to sustain production of HPMSM in the demonstration plant. We have
received all major permits required for the decline, with construction
expected to commence in late Q1 FY24, and completion targeted during CY25.
Capital expenditure for the decline is expected to be approximately US$60
million.
We are assessing opportunities to access grant funding from the U.S.
Department of Defense and U.S. Department of Energy to advance our
battery-grade manganese supply chain.
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 commodities including
bauxite, alumina, aluminium, copper, silver, lead, zinc, nickel, metallurgical
coal and manganese from 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
Ben Baker
T +61 8 9324 9363
M +61 403 763 086
E Ben.Baker@south32.net
Media Relations
Jamie Macdonald Miles Godfrey
T +61 8 9324 9000 T +61 8 9324 9000
M +61 408 925 140 M +61 415 325 906
E Jamie.Macdonald@south32.net
E Miles.Godfrey@south32.net
Further information on South32 can be found at www.south32.net
(http://www.south32.net) .
Approved for release to the market by Graham Kerr, Chief Executive Officer
JSE Sponsor: The Standard Bank of South Africa Limited
8 May 2023
Mineral Resource Statement for the Clark deposit
The information in this announcement that relates to Mineral Resources for the
Clark deposit is extracted from "Hermosa Project - Mineral Resource Estimate
Declaration" released on 12 May 2020. 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.
Production Target Cautionary Statement
The information in this announcement that refers to the Production Target is
based on Indicated (69%) and Inferred (31%) Mineral Resources for the Clark
Deposit. The Mineral Resources underpinning the Production Target is based on
Mineral Resources disclosed in South32's FY22 Annual Report published on 9
September 2022 (www.south32.net (http://www.south32.net) ) and is provided in
Annexure 2. The Mineral Resource estimate and supporting documentation was
prepared by a Competent Person in accordance with the requirement of the JORC
Code. All material assumptions on which the Production Target is based is
available in Annexure 1. 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 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 31% tonnage from Inferred Mineral Resources
is not the determining factor of the project viability and the project
forecasts a positive financial performance when using 69% tonnage from
Indicated Mineral Resources. South32 is satisfied, therefore, that the use of
Inferred Mineral Resources in the Production Target reporting is reasonable.
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.
Annexure 1: Material Assumptions for the Production Target
Criteria Commentary
Mineral Resource estimate as a basis for production target · The Production Target is based on 69% Indicated and 31% Inferred
Mineral Resources. The Mineral Resource was prepared by a competent person in
accordance with the requirements in Appendix 5A (JORC Code) and was declared
as part of South32's Annual declaration of resources and reserves in the
Annual Report published on 9 September 2022 (see Annexure 2 of this
announcement).
· South32 confirms that the inclusion of 31% tonnage from Inferred Mineral
Resources is not the determining factor of the project viability. The project
forecasts a positive financial performance when using 69% tonnage from
Indicated Mineral Resources. South32 is therefore satisfied that the use of
Inferred Mineral Resources in the determination of the Production Target is
reasonable.
Study status · A selection phase of the pre-feasibility study has been completed for
the Clark Deposit in compliance with the Association for the Advancement of
cost engineering (AACE) International Class 5 estimate standard within an
accuracy range of +/- 35%.
· 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 · Clark is a polymetallic deposit that uses an equivalent Net Smelter
Return (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 manganese (Mn), silver (Ag) and zinc (Zn).
· The cut-off strategy employed at Clark is to optimise the NPV of the
operation.
· An NSR cut-off grade of approximately US$160/tonne was used in the
development of mineable stope shapes.
Mining factors or assumptions · Primary access to the orebody will be through a single decline.
Ventilation raises will be established to provide ventilation to the working
areas. Paste backfill will be produced in a surface backfill plant and
distributed underground via a backfill reticulation system.
· 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 subsidence.
· 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.
· Geotechnical recommendations based on deposit geology have been used to
develop the stope shape dimensions.
· Due to the continuous nature of the orebody the mining recovery factor
in primary stopes is 105% to account for overbreak into ore in the adjacent
secondary stopes. The mining recovery factor in the secondary stopes is 85%.
· 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 31% of the total planned tonnes.
· Risk assessment was completed considering Inferred Mineral Resource as
waste to ensure that the Production Target as stated can be achieved.
Accordingly, the Company believes it has a reasonable basis for reporting a
Production Target including those Inferred Mineral Resources.
· The proposed mining method with modifying factors applied supports a
single-stage ramp-up to potential full-scale production rates of 450kt-800kt
per annum.
Metallurgical factors or assumptions · 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.
· Manganese is found to commonly occur as either cryptomelane or
pyrolusite. Zinc is hosted as a binary oxide mineral with manganese.
· The Clark plant will consist of conventional mineral hydrometallurgical
processing techniques. Primary crushing will be conducted on surface, and the
crushed ore will be transported to the off-site facility.
· At the offsite facility grinding will be conducted by a single-stage
semi-autogenous grinding (SAG) mill to a size suitable for leaching.
· Following the manganese and zinc extractive leach, the leach discharge
will be washed and filtered. The leach tails, containing silver will advance
to a conventional silver recovery circuit, producing silver doré. The silver
plant final tails will be filtered and stored in a dry stack tailings
facility.
· The manganese-zinc rich pregnant leach solution from the extractive leach
will advance through sequential purification circuits. Zinc is recovered as a
salable zinc sulphide product prior to manganese recovery. Manganese is
recovered via crystallization producing a high purity manganese sulphate
monohydrate (HPMSM) product.
· Metallurgical recovery is found to vary by geological domain and head
grade. Recovery ranges are applied based on geologic formation and grade.
Average process recoveries are: 95% for manganese to HPMSM product; 84% for
zinc in zinc sulphide and 85% for silver.
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 state and federal
approvals required for exploration, development and mining.
· 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. NAG material will be
managed in a designated rock stockpile or used for construction material.
· The tailings storage facilities have been designed in accordance with
South32's internal 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.
Infrastructure · Opportunities for synergy have been identified, and common
infrastructure, facilities, transport, and logistics required for Clark have
been integrated with the overall Hermosa site and operations, where feasible.
· The current Hermosa site activity is supported by office buildings,
core processing facilities, and a voluntary remediation program that includes
an existing tailings storage facility, a water treatment plant, ponds, road
networks, and laydown yards.
· Portions of the planned infrastructure and facilities for Clark are
located at the Hermosa site and at offsite locations to support future
operations. These will consist of:
o Mine portal
o Underground services and utilities
o Paste backfill plant
o Process comminution, hydrometallurgical circuits, and bagging plant
o Tailings filtration plant and dry stack tailings storage facility
o Dewatering wells, pipelines, and water treatment systems
o Surface shops, fuel bays, wash bays and office buildings
o Powerlines and substations
· Site layout plans, engineering deliverables, and project execution plans
will support the infrastructure listed above.
Costs · The capital cost estimate is supported by sufficient engineering
scope and definition for the preparation of a AACE International Class 5
estimate within an accuracy range of +/- 35%.
· 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 manganese, silver, 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 product from site 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
current US federal and state rates.
Revenue factors · The life of operation plan derived from the pre-feasibility select 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 (when applicable) rates to the scheduled payable metal. Metal
payabilities are based on contracted payability terms, typical for zinc and
silver. Battery grade manganese product revenue is based on internal price
forecasts.
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 to understand the value drivers and impact on the valuation.
· The selection phase of the pre-feasibility study evaluated alternate
cases to assess the impact of alternative approaches such as: changes in
capital spend profiles, mining methods, operating costs, etc.
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 Stakeholder Engagement Plan has been developed in accordance with the
South32 Social Performance Standard and includes baseline studies, community
surveys, risk assessments, stakeholder identification, engagement plans,
cultural heritage considerations, community investment plans, and closure and
rehabilitation plans.
Other · Hermosa has developed a comprehensive risk register and risk management
system to address foreseeable risks that could impact the project and future
operations.
· The project does not pose any significant natural risks, nor is it
subject to any significant legal agreements or marketing arrangements.
Annexure 2: Mineral Resource Statement for the Clark deposit as at 30 June
2022
Ore Type Indicated Mineral Resource Inferred Mineral Resource Total Mineral Resource
Mt % % g/t Mt % % g/t Mt % % g/t
Zn Mn Ag Zn Mn Ag Zn Mn Ag
UG Oxide 33 2.49 9.39 57 22 2.04 8.64 110 55 2.31 9.08 78
Total 33 2.49 9.39 57 22 2.04 8.64 110 55 2.31 9.08 78
Notes:
1. Cut-off grade: NSR of US$175/t.
2. Mt- Million Tonnes; Zn- Zinc; Mn- Manganese; Ag- Silver.
1 For further information, refer to "Hermosa Project - Mineral Resource
Estimate Declaration" released on 12 May 2020, where this Mineral Resource
estimate was first disclosed. South32 confirms that it is not aware of any new
information or data that materially affects the information included in that
announcement, and that all material assumptions and technical parameters
underpinning the estimate continue to apply and have not materially changed.
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