South32 Completes PFS for Taylor Deposit

Hermosa could fulfill the needs of critical metals

South32 Ltd. recently completed a prefeasibility study (PFS) for the Taylor Deposit, which is the first development option for the Australian company’s Hermosa project located in the Patagonia Mountains, about 80 kilometers (km) southeast of Tucson. The Taylor PFS envisions a multidecade 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 processing plant, in the first quartile of the industry cost curve.

The Taylor Deposit will progress to a feasibility study, including work streams designed to unlock additional value by optimizing 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-2023.

Separately, a scoping study for the neighboring Clark Deposit has confirmed the potential for a separate, integrated underground mining operation producing battery-grade manganese, as well as zinc and silver. South32 said 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, South32 has continued to complete surface geophysics, soil sampling and other exploration programs across the Hermosa land package. This work has defined a prospective corridor including Taylor and Clark as well as the Peake and Flux exploration targets, which will be prioritized for drill testing in 2022. To date, 13 drill holes have been completed at Peake.

“The Taylor Deposit provides an important first development option for the Hermosa project,” South32 CEO Graham Kerr said. “Completing the PFS 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. Beyond the Taylor Deposit, Clark offers the potential to realize further value from the investment in Hermosa.”

Unlocking Hermosa’s Potential

The Taylor Deposit is a large, carbonate-replacement, massive sulphide deposit that extends to a depth of approximately 1,200 meters (m) over an approximate strike length of 2,500 m and width of 1,900 m. The mineral resource estimate for the Taylor Deposit is 138 million metric tons (mt), averaging 3.82% zinc, 4.25% lead and 81 grams/mt silver. The deposit remains open at depth and laterally.

The mine design contemplated in the PFS is a dual-shaft access mine, which prioritizes higher grade mineralization 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 an assumption of an initial 22-year resource life with high mining productivity. Ramp up to nameplate capacity of up to 4.3 million mt per year (mt/y) is expected to be achieved in a single stage. Ore will be processed by a conventional sulphide ore flotation circuit producing separate zinc and lead concentrates with substantial silver credits.

The Clark Deposit is interpreted as the upper oxidized, manganese-rich portion of the upper 600 m of the mineralized system that hosts the Taylor Deposit. As it advances both the Taylor and Clark studies, the company said it would 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.

The third focus at Hermosa will be unlocking value through exploration of the regional-scale land package. Through the completion of surface geophysics, soil sampling, mapping and interpretation of recently acquired data, South32 has identified a highly prospective corridor that will be prioritized for future drilling. Within this corridor, it plans 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 mineralization.

South32 said it is actively reshaping its portfolio for a low carbon future, investing in opportunities that increase its exposure to base and precious metals, with strong demand fundamentals and low-carbon production intensity. The Taylor Deposit is the company’s most advanced development option at the Hermosa project, which has the potential to provide a multidecade platform at the operation that would further improve the company’s exposure to the metals required for the transition to a low-carbon future.

Sustainable development forms an integral part of South32’s development strategy. “We are designing the Taylor Deposit to be our first ‘next-generation mine,’ using automation and technology to minimize 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,” Kerr said. The company has also 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 its approach to sustainable development.

Mining and Processing

The Taylor PFS envisions a direct capital investment of $1.230 billion and approximately $470 million to establish the first development option with sustaining capital of approximately $40 million per year. The construction period is expected to be approximately four years. Mining capital expenditure includes the shafts (~$310 million), development, mobile equipment and infrastructure. Surface facilities include the processing plant (~$350 million), tailings and utilities. The capital estimate reflects assumptions for key inputs including steel, concrete and labor, as of the first half of fiscal year 2022. Indirect costs include contingencies and engineering, procurement and construction management (EPCM) costs. Sustaining capital expenditure is expected to average approximately $40 million per year and primarily relates to mine development.

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 for the second half of 2022 at a cost of approximately $55 million. The water wells and second water treatment plant (WTP) are expected to cost $225 million. A further $140 million of dewatering costs are included within the indirect costs.

Depending on the final investment decision and receipt of required permits, shaft development is expected in fiscal year 2024. First production is targeted for fiscual year 2027 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 U.S. Forest Service (USFS). The project may benefit from the classification of metals found at Hermosa as critical minerals. 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.

Ore is expected to be mined in an optimized 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 approximately 800 m. The equipment spread would consist of jumbo drills, rock bolters, production drills, LHDs 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.

The PFS process plant design is based on a sulphide ore flotation circuit to produce separate zinc and lead concentrates, with silver byproduct 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 specialized bulk containers.

The processing facility contemplated in the PFS 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.

The tailings storage facilities (TSF) would be designed in accordance with South32’s Dam Management Standard, which is consistent with the International Council on Mining and Metals (ICMM) Tailings Governance Framework. The company is 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 2020. This already completed work established a state-of-the-art dry stack facility that 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. South32 is considering 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 the second half of fiscal year 2022. 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 be met through two proposed WTPs. WTP1 is already installed and treatment upgrades are expected to be commissioned in Q3 fiscal year 2022, while WTP2 is expected to be commissioned in Q4 fiscal year 2023.

Hermosa has 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. Specialized 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, South32 said it will continue to investigate the potential to supply smelters in the Americas, substantially lowering its assumed transport logistics and shipping costs.

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 is delayed, as production may need to be slowed so tailings capacity could be restricted to patented lands until the RoD is received.

The Clark Deposit is a manganese-zinc-silver formation located adjacent, and up-dip of the Taylor Deposit, which has a mineral resource estimate of 55 million mt, averaging 9.08% manganese, 2.31% zinc and 78 g/t silver. The Clark Deposit is interpreted as the upper oxidized portion of the mineralized system, with the resource extending from near surface to a depth of approximately 600 m.

The Clark Deposit has the potential to underpin a second development at Hermosa. South32 recently completed a scoping study 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 South32’s 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 2022, 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.

South32 said it 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 realize operating and capital efficiencies.