PERTH (miningweekly.com) – While "higher inflation and uncontrollable costs" have impacted diversified miner South32’s statutory profits for the half-year ended December, the miner is confident that costs at its Hermosa project, in Arizona, are unlikely to increase.

Speaking on a conference call on Thursday, South32 CEO Graham Kerr said the prefeasibility study (PFS) into the Taylor deposit, at Hermosa, had been completed at a time when the US Construction Cost Index had peaked, meaning the capital cost estimates contained within the PFS were elevated.

“Since that time, we have seen the index decline, and we have actually seen it level off for a period of time. And from that perspective we have a reasonable degree of confidence about where we see the capital cost coming in for Taylor.”

Kerr added that work to update the capital cost estimated at Taylor, ahead of a final investment decision at the project in the middle of this calendar year, had seen costs come in well within the previous estimates.

“Obviously it is something that we will watch closely as we finalise the feasibility study over the next three to four months,” Kerr added.

The 2022 PFS into the Taylor deposit estimated that the polymetallic project could produce 111 000 t/y of zinc, 138 000 t/y of lead and 7.3-million ounces a year of silver, with the current resource life supporting a mine life of 22 years and a nameplate capacity of 4.3-million tonnes.

The PFS estimated a capital cost of $1.23-billion of direct costs and $470-million of indirect costs to establish the first development option at Hermosa, with the sustaining capital estimated at $40-million a year.

South32 on Thursday reported an 8% drop in revenue for the half-year ended December, with revenues reaching $3.69-billion, down from the $4-billion reported in the previous corresponding period.

Profits after tax declined by 34%, from $1.03-billion to $685-million while underlying earnings before interest, taxes, depreciation and amortisation (Ebitda) declined by 27% from $1.8-billion to $1.3-billion.

“We delivered another period of strong production results, and while commodity prices retreated from record levels, we recorded one of our largest profit results to date with underlying Ebitda of $1.36-billion,” said Kerr.

“Our strong financial result was underpinned by production growth of 12%, our recent portfolio improvements, which increased our exposure to the metals critical to a low-carbon future, and continued focus on cost efficiencies. This has enabled us to resolve to pay a fully-franked ordinary dividend of $224-million in respect of the December 2022 half-year.”

South32 reported a 12% increase in group copper equivalent production in the first half of 2023, as it achieved strong production results, including record half-year output at Australia Manganese, and realised the benefit of recently completed Sierra Gorda transactions that have further positioned its portfolio toward metals critical for a low-carbon future.

The miner expected to deliver an additional 6% increase in group copper equivalent production in the second half of 2023 following the completion of improvement projects in the first half of the year, and the continued ramp-up of the Brazil Aluminium smelter.

“Commodity markets have strengthened, leaving us well placed to capitalise on planned production growth and lower operating unit costs expected across the majority of our operations in the second half of the 2023 financial year,” Kerr said on Thursday.

“At our Hermosa project in Arizona, we are on track to make a final investment decision on the Taylor deposit in the middle of this calendar year. We have also confirmed the opportunity for Hermosa’s Clark deposit to supply battery-grade manganese into the growing North American electric vehicle supply chain.”

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.

At Clark, South32 remained on track for initial pilot plant production in mid-2023 to deliver first qualification samples of battery-grade manganese to potential customers. Regional exploration activity is also expected to increase as we continue exploration programmes at our Peake copper/lead/zinc/silver prospect and start drilling at the Flux prospect, following the receipt of approvals.

“The long-term outlook for our business is positive as a result of our portfolio investments and high-quality development options in the metals critical for a low-carbon future,” Kerr said on Thursday.

The miner has meanwhile deferred some capital expenditure (capex) for the full 2023, decreasing its spending target by $105-million to A$1.14-billion.

Growth capex at Hermosa has declined by $40-million for 2023, to $250-million, as the company renegotiated commercial supply agreements for long-lead items. The miner expected to invest $154-million in the project in the second half of the year as it continued to construct infrastructure to support critical path orebody dewatering and advance study work for the Taylor and Clark deposits.