South32 commits to critical minerals with major investment in US-based Taylor mine

South32 (ASX: S32) has taken another significant step forward in positioning itself to be an important critical minerals participant with final investment approval for the $3.3 billion Taylor development in the United States.

The company believes that Taylor, the first development at South32’s high-profile Hermosa project in Arizona, has the potential to become a top-10 global zinc producer with annual average steady state production of around 290,000 tonnes of zinc equivalent.

South32 chief executive officer Graham Kerr said the commodities produced at Taylor are expected to support global decarbonisation.

“Final investment approval to develop Taylor is a major milestone aligned with our strategy to reshape our portfolio toward commodities that are critical for a low-carbon future.”

South32 is forecasting that Taylor will have an initial operating life of around 28 years, return an average earnings before interest, tax, depreciation and amortisation margin of approximately 50% and an internal rate of return of around 12%.

It is targeting first production in H2 FY27 and the delivery of nameplate production in FY30.

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

“Once in production, Taylor is expected to add an additional 8% to group volumes relative to FY23 levels, increasing our supply of critical commodities and sustainably lifting margins due to its first quartile cost position.”

“With global zinc demand growth expected to outpace production by around 3 million tonnes to 2031, we expect higher incentive prices for zinc as Taylor ramps up to nameplate capacity.”

Zinc in demand

Designated as a critical mineral around the globe, zinc demand is forecast to grow at 2% per annum to 2031, supported by increasing intensity of use and the rapid deployment of wind and solar infrastructure.

Fitch Solutions recently revised its zinc price forecast for 2024 to around $3,800 a tonne, up from approximately $3,500/t.

South32 says Hermosa was the first mining project added to the US government’s FAST-41 process and is currently the only advanced project in the United States that could supply two federally-designated critical minerals.

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

“These include Clark, our battery-grade manganese deposit and potential discoveries in our highly prospective regional land package, which has already returned high-grade copper and zinc results from Peake and Flux.”

“Since inception, our disciplined approach to capital allocation has supported the significant transformation of our portfolio and consistent shareholder returns.”

“With the potential to be one of the world’s largest, lowest cost zinc producers, we expect Taylor will deliver value for our shareholders for decades to come.”

New studies underway

South32 has commenced new studies into the potential to create operating and capital efficiencies across Taylor including exploration drilling to follow-up high-grade copper and zinc results from the Peake and Flux prospects.

As part of the “greening” of its operations, South32’s Taylor mine has been designed to enable a future all-electric underground mining fleet.

The company is also pursuing options to potentially secure 100% renewable energy from local providers.

Taylor has also been designed as a small-footprint underground mine with efficient water use and state of the art dry-stack tailings.