South32 has given the green light for the development of a $2.16 billion zinc mine in Arizona, known as the Hermosa zinc-lead-silver project. Australian mining company South32 expects production to commence in 2027 at the Taylor deposit within the project. The feasibility study conducted by South32 confirms the potential for a long-life, low-cost, and low-carbon operation. The Taylor project is expected to have an operating life of 28 years, an average EBITDA margin of approximately 50%, and an internal rate of return of about 12%.
South32’s CEO, Graham Kerr, sees this investment as a significant milestone that aligns the company’s portfolio with commodities critical to a low-carbon future. Kerr also believes that Taylor has the potential to become one of the largest and lowest-cost zinc producers globally.
While the returns from the Taylor project may appear modest, analysts from Jefferies highlight the additional benefits South32 could gain if it later develops the adjacent Clark, Peake, and Flux deposits. Jefferies argues that when considering the broader Hermosa project, the other deposits have the potential to generate much higher returns as they can utilize a significant portion of the infrastructure put in place for the Taylor deposit.
South32’s announcement coincided with the release of its H1 results, revealing a steep 92% decline in after-tax profit due to declining metal prices. The company experienced a 34% year-on-year drop in its average realized nickel price. Furthermore, South32 reported H1 production figures of 18.3 million tons from its Cerro Matoso nickel mine in Colombia, significantly lower than its full-year target of 40 million tons.
The decision to move forward with the development of the Hermosa zinc-lead-silver project demonstrates South32’s confidence in the long-term prospects of the mining industry. The company remains committed to sustainable and environmentally-friendly operations, with a focus on commodities that support a low-carbon future.
With production at the Taylor deposit expected to begin in 2027, South32 is poised to contribute significantly to the global zinc market while creating economic opportunities for the local community in Arizona. The development of the Hermosa project will provide a boost to the mining sector and reinforce South32’s position as a key player in the industry.
