South32's $2.16B Mining Investment In Arizona Supports Biden's Clean Energy Vision

South32 Ltd SHTLF, the Australian mining company, announced board approval of a $2.16 billion investment in its Hermosa project in Arizona. The Hermosa project is the only advanced mining endeavor in the U.S. capable of producing two federally designated critical minerals, zinc and manganese.

“Today's investment decision represents a major milestone for our business and aligns with our strategy to reshape our portfolio toward commodities critical to a low-carbon future,” said CEO Graham Kerr.

The Hermosa project, nestled in Santa Cruz County, can potentially become one of the world's largest zinc mines. The site has two main deposits: Taylor, rich in zinc, lead, and silver, and Clark, containing zinc, manganese, and silver.

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This substantial investment will fund various critical infrastructure projects integral to developing the zinc-lead-silver deposit. These projects include water management systems, power facilities, site amenities, underground shaft sinking, initial underground development, and other necessary work to kickstart operations in the second half of 2027.

The management set high expectations for Taylor, expecting 290,000 tons per year, operating for 28 years at an average operating unit of $86 per ton processed.

The project made it to the FAST-41 permit list, owing to its potential to supply critical minerals crucial for clean energy technologies and national defense. The Biden administration set this fast-track permitting process involving streamlined permitting and environmental evaluation procedures to entice such projects and help reduce the nation's dependence on foreign sources of critical minerals.

South32 faced a significant headwind, recently reporting a 92% decrease in profits due to weak metallurgical coal output and declining commodity prices. The management responded by declaring a much lower interim dividend and suspending the remaining $98 million stock buyback.

Yet, this investment signals high expectations from the upcoming global zinc demand, as Kerr expects the demand to outpace production by about three million tons by 2031.

“The Taylor deposit is one of the most attractive undeveloped zinc-lead deposits globally, and we are confident that our investment will deliver strong returns,” Kerr noted, clarifying that, once in production, Taylor can immediately boost their output by 8% and substantially lift their margins.

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