South32 (LON:S32) executives told investors the company has lifted its capital cost estimate for the Taylor deposit development at its Hermosa project in Arizona, citing added scope, revised shaft construction costs, and inflation and tariff-driven increases in key input prices. Management said the project remains strategically important to the portfolio and is still expected to deliver “returns for decades to come,” even as first production timing has shifted and costs have risen.
Capital cost estimate increased to about $3.3 billion
Graeme Kerr said South32 has increased its gross capital estimate for Taylor by approximately $1.1 billion versus the project’s final investment decision, to about $3.3 billion. He attributed the increase to three main components:
- Approximately $100 million related to adding additional decline access from the Clark deposit.
- Approximately $450 million related to revised shaft construction costs.
- Approximately $500 million related to higher-than-expected inflation, industry-wide cost increases for key inputs, and tariffs on recently priced packages.
Clark decline to enable earlier ore access and increase optionality
Kerr said the exploration decline at the co-located Clark deposit was completed on schedule and on budget, benefiting from better-than-expected ground conditions and water flow rates. Subsequent study work confirmed the potential to use the Clark decline for additional Taylor ore body access, which management expects can unlock value by enabling earlier ore access and improving operational flexibility.
Management said the additional decline access is expected to increase ore handling capacity by roughly 25% over time and may support higher metal production if surface infrastructure and the process plant are debottlenecked. Kerr told analysts the company expects to spend the capital needed to provide this “optionality,” while additional plant debottlenecking work will be studied over the next roughly 12 months.
In a sensitivity example, Kerr said adding 1 million tonnes of capacity could be worth “about $1 billion NPV” if the resource continues to be expanded.
Schedule changes linked to shaft contractor underperformance
South32 updated its development timeline, saying first ore mined at Taylor is now expected to come from the Clark decline in mid-fiscal 2028, with production expected in the second half of fiscal 2028 and nameplate capacity by fiscal 2031.
Kerr said this reflects delayed shaft completion due to “contractor underperformance and productivity challenges,” emphasizing that South32 is not seeing major geotechnical or water issues. “This is about engineering delays,” he said, describing the issue as productivity performance rather than technical challenges.
In response to investor questions, Kerr provided detail on shaft progress. He said the ventilation shaft was about 75% complete at 618 meters at the end of April and, based on achieved rates, could finish around July. The main (production) shaft was about 53% complete at 478 meters and has performed stronger than the vent shaft, with lessons transferred from earlier work. Kerr said the project has moved into unit rate contracting for sinking going forward, and South32 is using “past performance” rather than “hero assumptions” to set expectations.
Cost risk profile and contingencies
Kerr said the process plant and surface infrastructure are “tracking to plan” on schedule, and he described the recent cost pressure as price-driven rather than the result of timing or scope change for that portion of the project. He also said most major equipment has been ordered, with some already on site or staged.
On remaining risk, Kerr said Taylor is about 85% engineered, described the estimate as a “class estimate of 1 to 2,” and said procurement of large items is “virtually complete.” He added that the revised estimate includes “contingency about $232 million,” based on what he described as a P50 approach.
Asked about depreciation or concessions related to tariffs, Kerr said: “No.” He added that the company’s tariff exposure has been estimated for some time and is currently toward the lower end of the previously discussed range, while his bigger concern has been inflation in items such as concrete, steel, piping, and electrical components.
Long-life asset case and upside options, including Peak copper
Kerr reiterated that Hermosa is a regional-scale critical minerals project in Arizona that was approved for development in February 2024. He described Taylor as a modern, large-scale operation expected to produce zinc, silver, and lead over multiple decades, and said it could “almost double” South32’s silver production once in execution. He also said Taylor’s current mine life stands at 33 years and remains open in multiple directions, with additional upside potential across the district.
Despite the cost and timing update, Kerr said Taylor is still expected to be a “high margin” operation, with steady-state EBITDA of about $650 million per annum and “about AUD 800 million per annum” at spot prices, in his example.
On Peak, Hermosa’s copper deposit, Kerr said South32 announced a 32% increase in Peak’s mineral resource to about 33 million tonnes at 1.78% copper equivalent, and that the deposit remains open in multiple directions. He said Peak’s sequencing in the mine plan will likely be driven by relative economics, adding that if silver prices stay near current levels, Peak could come in around years 8 to 10, while a change in prices or higher-grade copper could alter timing.
Kerr also said South32 has allowed for space to add a copper circuit and described it as a “low capital cost option,” citing an estimate range of $50 million to $60 million.
In closing remarks, Kerr acknowledged the revised capital number was “not the result we expected,” but emphasized Taylor’s location in a “tier 1 jurisdiction,” the attractiveness of zinc, and the project’s long duration and growth options, including continued resource growth at Taylor and access to additional prospective land following federal approvals.
About South32 (LON:S32)
South32 Limited operates as a diversified metals and mining company in Australia, India, China, Japan, the Middle East, Mozambique, the Netherlands, Brazil, Russia, South Africa, South Korea, the United States, and internationally. The company operates through Worsley Alumina, Brazil Alumina, Brazil Aluminium, Hillside Aluminium, Mozal Aluminium, Sierra Gorda, Cannington, Hermosa, Cerro Matoso, Illawarra Metallurgical Coal, Australia Manganese, and South Africa Manganese segments. It has a portfolio of assets producing bauxite, alumina, aluminum, copper, silver, lead, zinc, nickel, metallurgical coal, manganese, ferronickel, and other base metals.
