Wrap Text
Hermosa project update
South32 Limited
(Incorporated in Australia under the Corporations Act 2001 (Cth))
(ACN 093 732 597)
ASX / LSE / JSE Share Code: S32 ADR: SOUHY
ISIN: AU000000S320
south32.net
17 January 2022
HERMOSA PROJECT UPDATE
Conference call at 11.00am Australian Western Standard Time, details overleaf.
South32 Limited (ASX, LSE, JSE: S32; ADR: SOUHY) (South32) is pleased to provide an update following
completion of a pre-feasibility study (PFS) for the Taylor Deposit, which is the first development option
at our 100% owned Hermosa project located in Arizona, USA.
The PFS results support Taylor’s potential to be the first development of a multi-decade 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 process plant, in the
first quartile of the industry cost curve [footnote 1].
The Taylor Deposit will progress to a feasibility study, including work streams designed to unlock
additional value by optimising 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 CY23.
Separately, a scoping study [a] for the spatially linked Clark Deposit has confirmed the potential for a
separate, integrated underground mining operation producing battery-grade manganese, as well as zinc
and silver. 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, we have continued
to complete surface geophysics, soil sampling and other exploration programs across our land package.
This work has resulted in the definition of a highly prospective corridor including Taylor and Clark as
well as the Peake and Flux exploration targets [b] which will be prioritised for drill testing in CY22.
Further details of the Taylor PFS are contained in the attached report and accompanying presentation.
South32 Chief Executive Officer, Graham Kerr said: “The Taylor Deposit provides an important first
development option for our Hermosa project in Arizona, USA. The project has the potential to
sustainably produce the metals critical for a low carbon future across multiple decades from different
deposits.
“Completing the pre-feasibility study 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 in the
industry’s first cost quartile. Beyond Taylor, Clark offers the potential to realise further value from our
investment in Hermosa through the production of battery-grade manganese, a mineral designated as
critical in the United States.
“Additional exploration targets around Taylor and Clark are indicative of further upside while the
broader land package contains highly prospective areas for polymetallic and copper mineralisation.
“We are designing the Taylor Deposit to be our first ‘next generation mine’, using automation and
technology to minimise 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.
“The future development of Taylor provides a platform from which to realise Hermosa’s immense
potential. It will further strengthen our portfolio and align with the already substantial growth in
production of metals critical to a low carbon future that we have embedded in the portfolio over the
past six months.”
(a) The references to the scoping study in respect of the Clark Deposit are to be read in conjunction with the cautionary statement in
footnote 2 (can be viewed on page 18 in the full announcement available on the NSM).
(b) The references to the Exploration Target for the Hermosa project (including Peake) are to be read in conjunction with the
cautionary statement in footnote 3 (can be viewed on page 18 in the full announcement available on the NSM
Conference call
South32 will hold a conference call at 11.00am Australian Western Standard Time (2.00pm Australian
Eastern Daylight Time) on 17 January 2022 to provide an update of the Hermosa project including Q&A,
the details of which are as follows:
Conference ID
Please pre-register for this call at link.
Website
A replay of the conference call will be made available on the South32 website.
HERMOSA PROJECT
Hermosa is a polymetallic development option located in Santa Cruz County, Arizona, and is 100%
owned by South32. It comprises the zinc-lead-silver Taylor sulphide deposit (Taylor Deposit), the zinc-
manganese-silver Clark oxide deposit (Clark Deposit) and an extensive, highly prospective land package
with the potential for further polymetallic and copper mineralisation. Hermosa is well located with
excellent access to skilled people, services and transport logistics.
We have completed a PFS for the Taylor Deposit, our first development option at Hermosa. The Taylor
Deposit is a large, carbonate replacement massive sulphide deposit which extends to a depth of
approximately 1,200m over an approximate strike length of 2,500m and width of 1,900m. The Mineral
Resource estimate for the Taylor Deposit is 138Mt, averaging 3.82% zinc, 4.25% lead and 81 g/t silver
[footnote 4]. The deposit remains open at depth and laterally, offering further exploration potential.
The preferred mine design applied to the PFS is a dual shaft access mine which prioritises higher grade
mineralisation 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 our
assumption of an initial 22 year resource life [footnote 5] with high mining productivity. Ramp up to
nameplate capacity [c] of up to 4.3 million tonnes per annum (Mtpa) [footnote 7] is expected to be
achieved in a single stage. The process design applies a conventional sulphide ore flotation circuit
producing separate zinc and lead concentrates with substantial silver credits.
In addition to the current Mineral Resource estimate for Taylor, we have defined an Exploration Target
ranging from 10 to 95Mt [footnote 3] indicating the potential for further exploration upside. The
exploration opportunity at Taylor includes depth and extensional opportunities as well as new prospects
in proximity to the deposit. We have identified an Exploration Target at depth to the Taylor Deposit
known as Peake, with initial drilling results returning copper and polymetallic mineralisation. Further
drilling at Peake is planned in CY22.
Separately, we have completed a scoping study for the spatially linked Clark Deposit, confirming the
potential for an underground mining operation producing battery-grade manganese, as well as zinc and
silver. We are undertaking a PFS for Clark to increase our confidence in the mining and processing
assumptions of a preferred development option and customer opportunities in the rapidly growing
battery-grade manganese markets.
The Clark Deposit is interpreted as the upper oxidised, manganese-rich portion of the mineralised
system that hosts Taylor. As we advance both our Taylor and Clark studies, we 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.
Our third focus at Hermosa remains on unlocking value through exploration of our regional scale land
package. Through the completion of surface geophysics, soil sampling, mapping and interpretation of
recently acquired data, we have identified a highly prospective corridor which will be prioritised for
future drilling. Within this corridor, we plan 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 mineralisation [footnote 8].
__________________________
(c) The references to all Production Targets and resultant financial forecast information in this announcement is to be read in
conjunction with the cautionary statement in footnote 6 (can be viewed on page 18 in the full announcement available on the NSM).
The key facts and material assumptions to support the reasonable basis for this information is provided in Annexure 2 of this
announcement.
STRATEGIC ALIGNMENT
We continue to actively reshape our portfolio for a low carbon future, investing in opportunities that
increase our exposure to base and precious metals, with strong demand fundamentals and low carbon
production intensity. The Taylor Deposit is our most advanced development option at the Hermosa
project, which has the potential to provide a multi-decade platform at the operation that would further
improve the Group’s exposure to the metals required for the transition to a low carbon future.
SUSTAINABLE DEVELOPMENT
Sustainable development is at the heart of our purpose at South32 and forms an integral part of our
strategy. The Taylor Deposit has been designed as our first “next generation mine” using automation
and technology to drive efficiencies, minimise our impact and reduce carbon emissions. We have
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 our approach
to sustainable development.
The Taylor Deposit has been designed as a low-carbon operation, with the feasibility study to target the
further potential to achieve carbon neutrality. This may be achieved through identified options to access
100% renewable energy from local providers, and the potential use of battery electric vehicles and
underground equipment. The development of the Taylor Deposit would be consistent with our
commitment to a 50% reduction in our operational carbon emissions by FY35 and net zero by 2050.
CAPITAL MANAGEMENT FRAMEWORK
A final investment decision for the Taylor Deposit and its potential tollgate to construction will be
assessed within our unchanged capital management framework. Our framework, which prioritises
investment in safe and reliable operations, an investment grade credit rating and returns to
shareholders via our ordinary dividends, also seeks to establish and pursue options that create enduring
value for shareholders, such as capital investments in new projects. Our preferred funding mechanism
for any future developments at Hermosa will be consistent with our commitment to an investment
grade credit rating through the cycle that supports our strong balance sheet.
PFS HIGHLIGHTS
The PFS results demonstrate Taylor’s potential to be a globally significant producer of green metals
critical to a low carbon future, in the first quartile of the industry cost curve. Taylor has the potential to
underpin a regional scale opportunity at Hermosa, with ongoing activities to unlock additional value
from the Clark Deposit and exploration opportunities across the regional land package.
• Our initial development scenario outlines the potential for a large scale, highly productive
underground mine
- Dual shaft access which prioritises higher grade ore in early years
- Proposed mining method is low technical risk, employing longhole open stoping with paste
backfill
- Single stage ramp-up to nameplate production of up to 4.3Mtpa
- Conventional sulphide ore flotation circuit
• Potential to be a globally significant producer of metals for a low carbon future
- PFS estimates annual average production ~111kt zinc, ~138kt lead and ~7.3Moz silver
(~280kt zinc equivalent (ZnEq) [footnote 9], with output ~20% higher across the years of
steady state production [footnote 10]
- Zinc is used in renewable energy infrastructure such as solar and wind for energy conversion
and to protect against corrosion; silver is a key element used in solar panels; while lead
demand is expected to be supported by its use in renewable energy storage systems
• Potential for a low cost operation in the industry’s first quartile
- Average Operating unit costs ~US$81/t ore milled (all-in sustaining cost (AISC) [footnote 11]
~US$(0.05)/lb ZnEq) benefitting from high underground productivity
• Directs capital to establish a multi-decade base metals operation and platform for growth at
Hermosa
- Project capital of ~US$1,230M (direct) and ~US$470M (indirect) to establish the first
development option
- Low sustaining capital ~US$40M per annum
- Potential to realise capital efficiencies through an integrated development of Taylor and Clark
• A large Mineral Resource with substantial exploration potential
- Taylor Deposit supports an initial resource life of ~22 years, and remains open at depth and
laterally
- 10 to 95Mt Exploration Target identified, indicating the potential for further exploration
upside
- Copper-lead-zinc-silver mineralisation intercepted at the proximal Peake prospect
• Pursues the sustainable development of critical metals
- We are investing in local programs and partnerships that reflect the priorities of our
communities
- We are committed to working with Native American tribes to protect cultural resources
- We have completed key biodiversity, ecosystem and water studies
- We are pursuing a pathway to net zero carbon emissions with identified options for renewable
energy
FURTHER OPPORTUNITIES TO UNLOCK VALUE
Reflecting the early stage nature of the project we have identified numerous opportunities to unlock
further value at Taylor that will be pursued prior to a final investment decision. Opportunities identified
include the potential to:
• Extend the resource life, which is underpinned by the current Taylor Mineral Resource estimate
and does not include the further potential identified in our Exploration Target.
• Reduce operating costs through:
- Further optimisation of the mining schedule, power consumption and comminution circuit;
- Supplying smelters in the Americas to realise a material reduction in transport costs; and
- Adopting emerging technologies and further automation opportunities, targeting enhanced
productivity.
• Reduce capital costs through further optimisation of the shaft design, construction and
procurement.
• Achieve a carbon neutral operation through access to 100% renewable energy from local suppliers.
• Integrate the underground development with the Clark Deposit.
NEXT STEPS
Taylor will now progress to a feasibility study which is targeted for completion in mid CY23. 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 to commence in H2 FY22. Total pre-
commitment capital expenditure associated with dewatering of approximately US$55M is expected in
H2 FY22, with further investment expected in FY23. This expenditure is included in the growth capital
estimate in Table 1 below.
The PFS assumes a single stage ramp-up to the nameplate production rate. Based on the PFS schedule,
and subject to a final investment decision and receipt of required permits, shaft development is
expected to commence in FY24. First production is targeted in FY27 with surface infrastructure, orebody
access, initial production and tailings storage expected on patented lands which require state-based
approvals. Surface disturbance and additional tailings storage on unpatented land will require
completion of the National Environmental Policy Act (NEPA) process with the United States Forest
Service (USFS). The project may benefit from the classification of metals found at Hermosa as critical
minerals in the United States. Zinc is proposed to be added as a critical mineral by the U.S. Geological
Survey while manganese (found at the Clark Deposit) already has this designation.
PFS SUMMARY RESULTS
Key PFS outcomes are summarised below. Given the project’s early stage nature, the accuracy level in
the PFS for operating costs and capital costs is -15% / +25%. The cost estimate has a base date of H1
FY22. Unless stated otherwise, currency is in US dollars (real) and units are in metric terms.
Table 1: Key PFS outcomes
Nameplate production capacity Mtpa ~4.3
Resource life Years ~22
Head grades (average) %, g/t 4.1% Zn, 4.5% Pb, 82 g/t Ag
Annual payable zinc production (average / kt ~111 / ~130
steady state [footnote 10])
Production
Annual payable lead production (average / kt ~138 / ~166
steady state)
Annual payable silver production (average / Moz ~7.3 / ~8.7
steady state)
Annual payable ZnEq production [footnote kt ~280 / ~340
9] (average / steady state)
Operating Operating unit costs (per tonne ore milled) US$/t ~81
costs Operating unit costs (per lb ZnEq) US$/lb ZnEq ~(0.71)
Direct growth capital US$M ~1,230
Capital
Indirect growth capital US$M ~470
expenditure
Sustaining capital (annual average) US$M ~40
TAYLOR DEPOSIT PFS
The PFS for the Taylor Deposit provides confirmation that it is a technically robust project that has the
potential to deliver an attractive return on investment. The PFS is based on an underground zinc-lead-
silver mine development using longhole open stoping and a conventional sulphide ore flotation circuit
producing separate zinc and lead concentrates, with silver by-product credits. The preferred
development scenario is based on a mining and processing rate of up to 4.3Mtpa, with a resource life
of approximately 22 years.
The PFS was completed with input from consultants including Fluor for the process plant and on-site
infrastructure, SRK Consulting for geological and technical reviews, Stantec for mining studies,
NewFields for hydrogeology, Montgomery & Associates for dewatering and tailings, Black and Veatch,
and BQE for water treatment design and CPE for off-site roads. The PFS has been subject to an
independent peer review.
Mineral Resource estimate
The Taylor Deposit is a carbonate replacement style zinc-lead-silver massive sulphide deposit. It is
hosted in Permian carbonates of the Pennsylvanian Naco Group of south-eastern Arizona. The Taylor
Deposit comprises the upper Taylor sulphide (Taylor Mains) and lower Taylor deeps (Taylor Deeps)
domains that have a general northerly dip of 30° and are separated by a low angle thrust fault.
The Taylor Mineral Resource estimate is reported in accordance with the JORC Code (2012) at
138Mt, averaging 3.82% zinc, 4.25% lead and 81 g/t silver with a contained 5.3Mt of zinc, 5.9Mt of lead
and 360Moz of silver. The Mineral Resource estimate is reported using a net smelter return (NSR) cut-
off value of US$80/t for material considered extractable by underground open stoping methods.
The Taylor Deposit has an approximate strike length of 2,500m and a width of 1,900m. The stacked
profile of the thrusted host stratigraphy extends 1,200m from near-surface and is open at depth and
laterally. It is modelled as one of the first carbonate replacement deposit occurrences in the region, with
all geological and geochemical information acquired to date being consistent with this model.
Figure 1: Taylor Mineral Resource (image can be viewed in the full announcement available on the
NSM)
Exploration Target
The Taylor Mineral Resource is within a highly prospective mineralised system and is open at depth and
laterally, offering the potential for further exploration upside.
We have completed work aimed at developing an unconstrained, spatial view of the Exploration Target
at the Taylor Deposit, considering extensional and near-mine exploration potential.
The Hermosa project has sufficient distribution of drill data to support evaluation of the size and quality
of Exploration Targets. Tables of individual drill hole results are provided in Annexure 1 of this
announcement, as well as a listing of the total number of holes and metres that support the assessment
of the Exploration Target size and quality.
The tonnage represented in defining Exploration Targets is conceptual in nature. There has been
insufficient exploration to define a Mineral Resource and it is uncertain if further exploration will result
in the determination of a Mineral Resource. It should not be expected that the quality of the Exploration
Targets is equivalent to that of the Mineral Resource.
Estimations were performed using resource range analysis, in which deterministic estimates of potential
volumes and grades are made over a range of assumptions on continuity and extensions that are
consistent with available data and generic models of carbonate replacement, skarn and vein styles of
mineralisation.
The estimates are supported by exploration results from prospects in and around the Taylor Mineral
Resource. These results are all of carbonate replacement, skarn, and vein styles of mineralisation and
are currently explored at varying degrees of maturity and exploration drilling density.
Outcomes for the Exploration Target are provided in Table 2 below. The mid case Exploration Target is
approximately 45Mt.
Table 2: Ranges for the Exploration Target for Taylor sulphide mineralisation (as at 31 December 2021)
Low Case Mid Case High Case
% % g/t % % g/t % % g/t
Mt Mt Mt
Zn Pb Ag Zn Pb Ag Zn Pb Ag
Sulphide 10 3.8 4.2 81 45 3.4 3.9 82 95 3.6 4.0 79
Notes:
a) Net smelter return cut-off (US$80/t): Input parameters for the NSR calculation are based on South32’s long
term forecasts for zinc, lead and silver pricing, haulage, treatment, shipping, handling and refining charges.
Metallurgical recovery assumptions are 90% for zinc, 91% for lead, and 81% for silver.
b) All masses are reported as dry metric tonnes (dmt). All tonnes and grade information have been rounded to
reflect relative uncertainty of the estimate, hence small differences may be present in the totals.
Peake prospect
Our drilling programs at the Taylor Deposit have focused on improving confidence in the mine plan for
the potential development, extending the resource and testing near-mine exploration prospects.
As part of our work on near-mine exploration targets, we have intersected the skarn hosted copper-
lead-zinc-silver Peake prospect, located south of the Taylor Deposit at a depth of approximately 1,300-
1,500m. To date, 13 drill holes have been completed at Peake, a deeper zone prospective for copper
mineralisation, returning results that intersected copper, lead, zinc and silver. The geological model
interpreted from these results and other recently acquired data indicates the potential for a continuous
structural and lithology-controlled system connecting Taylor Deeps and Peake. Further exploration
drilling is planned in CY22.
Selected exploration drilling results from the Peake prospect are shown in Table 3 below.
Table 3: Selected Peake drilling results
From To Width Zinc Lead Silver Copper
Hole ID Cut off
(m) (m) (m) (%) (%) (ppm) (%)
1279.2 1389.0 0.2% Cu 109.7 0.1 0.3 15 0.62
HDS-540 Including
1303.6 1309.7 0.2% Cu 6.1 0.2 0.4 61 3.48
1308.2 1384.7 0.2% Cu 76.5 0.2 0.4 25 1.52
Including
HDS-552 1309.9 1328.6 0.2% Cu 18.8 0.1 0.2 40 2.77
And
1364.3 1384.7 0.2% Cu 20.4 0.1 0.3 37 2.44
1322.2 1374.6 0.2% Cu 52.4 0.1 1.1 105 1.73
Including
1322.2 1346.0 0.2% Cu 23.8 0.1 0.8 81 3.32
Including
HDS-661
1322.2 1330.1 0.2% Cu 7.9 0.1 0.4 81 7.89
1386.8 1460.6 0.2% Cu 73.8 0.5 0.7 67 1.06
Including
1399.6 1410.3 0.2% Cu 10.7 0.7 1.5 227 2.84
HDS-717 1456.6 1466.7 0.2% Cu 10.1 0.5 1.0 78 2.57
All exploration drilling results from the Peake prospect are shown in Table 4 below. All drill intersections
used to define the Exploration Target are included in Annexure 1 of this announcement.
Table 4: All Peake drilling results
From To Width Zinc Lead Silver Copper
Hole ID Cut off
(m) (m) (m) (%) (%) (ppm) (%)
HDS-535 No significant intersection
1279.2 1389.0 0.2% Cu 109.7 0.1 0.3 15 0.62
Including
HDS-540
1303.6 1309.7 0.2% Cu 6.1 0.2 0.4 61 3.48
1469.7 1488.0 0.2% Cu 18.3 0.0 0.0 10 0.63
HDS-545 No significant intersection
HDS-549 1169.5 1175.6 0.2% Cu 6.1 1.5 1.6 312 1.92
1100.6 1111.6 0.2% Cu 11.0 0.0 0.2 10 0.39
HDS-551 1254.9 1280.8 0.2% Cu 25.9 0.0 0.0 10 0.54
1294.5 1372.8 0.2% Cu 78.3 0.0 0.1 10 0.51
1265.8 1273.9 0.2% Cu 8.1 0.2 0.5 27 0.39
1308.2 1384.7 0.2% Cu 76.5 0.2 0.4 25 1.52
Including
HDS-552 1309.9 1328.6 0.2% Cu 18.8 0.1 0.2 40 2.77
And
1364.3 1384.7 0.2% Cu 20.4 0.1 0.3 37 2.44
1478.9 1484.8 0.2% Cu 5.9 1.0 1.5 57 0.41
HDS-557 No significant intersection
1298.4 1305.2 2% ZnEq 6.7 0.6 3.4 249 0.89
1322.2 1374.6 0.2% Cu 52.4 0.1 1.1 105 1.73
Including
1322.2 1346.0 0.2% Cu 23.8 0.1 0.8 81 3.32
HDS-661
Including
1322.2 1330.1 0.2% Cu 7.9 0.1 0.4 81 7.89
1386.8 1460.6 0.2% Cu 73.8 0.5 0.7 67 1.06
Including
1399.6 1410.3 0.2% Cu 10.7 0.7 1.5 227 2.84
And
1424.0 1446.9 0.2% Cu 22.9 0.5 0.6 45 1.24
1555.1 1573.1 0.2% Cu 18 3.2 1.4 87 0.37
1316.4 1329.2 0.2% Cu 12.8 3.4 4.4 137 0.95
HDS-662
1540.8 1546.7 2% ZnEq 5.9 5.9 2.1 250 0.45
1580.1 1591.8 0.2% Cu 11.7 0.1 0.0 16 0.95
HDS-663
1615.9 1651.1 0.2% Cu 35.2 1.1 0.1 27 0.56
1343.6 1353.6 2% ZnEq 10.1 3.8 3.5 61 0.47
1384.7 1395.4 0.2% Cu 10.7 2.7 2.9 38 1.03
1405.9 1415.2 0.2% Cu 9.3 0.5 0.7 11 0.26
1421.3 1452.1 0.2% Cu 30.8 0.7 0.8 22 0.59
1463.6 1509.7 0.2% Cu 46.0 0.4 0.5 21 0.43
HDS-691 1540.6 1549.3 0.2% Cu 8.7 0.3 0.9 51 0.61
1563.9 1581.3 0.2% Cu 17.4 0.2 0.2 23 0.55
1662.7 1677.9 0.2% Cu 15.2 2.8 1.1 155 1.19
1683.4 1692.6 2% ZnEq 9.1 1.5 0.3 45 0.13
1732.0 1735.2 2% ZnEq 3.2 6.2 0.3 107 0.18
1994.6 1997.4 2% ZnEq 2.7 1.7 0.3 54 0.08
1065.3 1072.4 0.2% Cu 7.2 3.5 2.7 22 0.21
1306.1 1318.3 0.2% Cu 12.2 1.8 1.8 63 0.82
1444.1 1466.7 0.2% Cu 22.6 1.7 1.7 46 1.38
Including
HDS-717
1456.6 1466.7 0.2% Cu 10.1 0.5 1.0 78 2.57
1517.9 1522.2 2% ZnEq 4.3 3.0 1.8 49 0.03
1718.6 1727.0 0.2% Cu 8.4 1.0 0.1 39 1.99
1754.1 1763.3 2% ZnEq 9.1 1.4 0.5 42 0.13
HDS-763 1429.8 1439.6 2% ZnEq 9.8 2.3 0.1 3 0.02
Figure 2: Peake prospect (image can be viewed in the full announcement available on the NSM)
Mining
The PFS design for Taylor is a dual shaft mine which prioritises early access to higher grade
mineralisation, supporting ZnEq average grades of approximately 12% [footnote 9] in the first five years
of the mine plan. The proposed mining method, longhole open stoping, maximises productivity and
enables a single stage ramp-up to our preferred development scenario of up to 4.3Mtpa. In the PFS
schedule, shaft development is expected to commence in FY24 with first production targeted in FY27
and nameplate production in FY30.
Ore is expected to be mined in an optimised 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 a depth of approximately 800m.
The operation would be largely resourced with a local owner-operator workforce, with a mining fleet
consisting of jumbo drills, rock bolters, production drills, load, haul and dump machines 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.
Processing
The PFS process plant design is based on a sulphide ore flotation circuit to produce separate zinc and
lead concentrates, with silver by-product 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 specialised bulk containers.
The PFS processing facility 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. Indicative production rates in the PFS are shown
in Figure 3.
Figure 3: Payable ZnEq production and head grade (image can be viewed in the full announcement
available on the NSM)
The PFS mine ramp-up enables nameplate capacity to be reached in FY30. Annual average payable
production is ~111kt zinc, ~138kt lead and ~7.3Moz silver (~280kt ZnEq [footnote 9]). Production over
the steady state years (FY30 to FY44) is expected to be approximately 20% higher, averaging ~130kt
zinc, ~166kt lead and ~8.7Moz silver (~340kt ZnEq [footnote 9]).
Site infrastructure
PFS capital includes estimates for non-processing infrastructure, including required tailings, power and
water infrastructure.
Figure 4: Site infrastructure (image can be viewed in the full announcement available on the NSM)
The tailings storage facilities (TSF) have been designed in accordance with South32’s Dam Management
Standard, with our approach being consistent with the International Council on Mining and Metals
(ICMM) Tailings Governance Framework. We are 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 CY20. This already completed work established a state-of-
the-art dry stack facility which 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. We have commenced discussions in relation to securing 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
H2 FY22. 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 met through two proposed water treatment plants
(WTP). WTP1 is already installed and treatment upgrades are expected to be commissioned in Q3 FY22,
while WTP2 is expected to be commissioned in Q4 FY23.
Logistics
Hermosa is well located with 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. Specialised 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 we will
continue to investigate the potential to supply smelters in the Americas, substantially lowering our
assumed transport logistics and shipping costs.
Operating cost estimates
The PFS includes estimates for mining, processing, general and administrative operating costs.
Mining costs (~US$35/t ore processed) include all activities related to underground mining, including
labour, materials, utilities and maintenance. Processing costs (~US$13/t ore processed) include
consumables, labour and power. General and administrative costs (~US$10/t ore processed) include
head office corporate costs and site support staff. Other costs (~US$23/t ore processed) include
shipping and transport (~US$16/t ore processed), marketing and royalties, with private net smelter
royalties averaging 2.4% (~US$4/t ore processed).
Average PFS operating unit costs of ~US$81/t ore processed (~US$77/t at steady state production)
reflect the high productivity rates expected from concurrently mining multiple independent
underground areas and the benefit from access to local, skilled service providers.
Average PFS Operating unit costs expressed on a zinc equivalent basis of ~US$(0.71)/lb and AISC
[footnote 11] of ~US$(0.05)/lb place the Taylor Deposit in the first quartile of the industry cost curve1.
Table 5: Operating unit costs – $t/ore processed
Item US$/t ore processed
Mining ~35
Processing ~13
General and administrative ~10
Other (including royalties) ~23
Total ~81
Table 6: Operating unit costs – $/lb ZnEq
Item $/lb ZnEq
Mining ~0.51
Processing ~0.19
General and administrative ~0.15
Other (including royalties) ~0.33
Operating unit costs ~1.18
Lead and silver credits ~(1.89) [footnote 12]
Zinc equivalent operating unit costs ~(0.71)
Capital cost estimates
Direct PFS capital expenditure estimates to construct Taylor are shown below. The construction period
following a final investment decision is expected to be approximately four years. Indirect costs include
contingency, owner’s and engineering, procurement, and construction management (EPCM) costs to
support the project. The Group will also continue to incur ongoing costs for work being undertaken
across the broader Hermosa project that will be separately guided.
Table 7: Growth capital expenditure (from 1 January 2022)
Item US$M
Mining ~565
Surface facilities ~440
Dewatering ~225
Direct costs ~1,230
Indirect costs (including contingency) ~470
Total ~1,700
Mining capital expenditure includes the shafts (~US$310M), development, mobile equipment and
infrastructure. Surface facilities includes the processing plant (~US$350M), tailings and utilities. The
capital estimate reflects assumptions for key inputs including steel, cement and labour as at H1 FY22.
Additional capital is included in the PFS estimates for critical path orebody dewatering. The direct capital
expenditure estimate of US$225M includes expenditure directly attributable to water wells and a
second required water treatment plant. A further ~US$140M of owner’s costs across the period of
dewatering are included within indirect costs (~US$470M).
Further value engineering work in the feasibility study will target a potential reduction in capital costs
through further optimisation of the shaft design, construction and procurement.
Sustaining capital expenditure is expected to average approximately US$40M per annum and
primarily relates to mine development.
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 was delayed, as production may need to be
slowed so tailings capacity could be restricted to patented lands until the RoD is received.
Our approach to sustainability at Hermosa
Sustainable development is at the heart of our purpose at South32 and forms an integral part of our
strategy. Our commitment to sustainable development is embedded in the approach we are adopting
at Taylor.
We have developed a comprehensive stakeholder identification, analysis and engagement plan. Our key
stakeholders include local communities within Santa Cruz County, Native American tribes with historic
affiliation around the project area, and county, state and federal government agencies.
Partnering with local communities
We have developed a community investment plan for Hermosa. Key investment initiatives include a
South32 Hermosa Community Fund developed in partnership with the Community Foundation for South
Arizona, community sponsorships and grants to community programs that reflect the priorities of the
communities around Hermosa. In addition to community investment programs, we have established
local procurement and employment plans designed to provide direct economic benefits for our
communities.
Preserving cultural heritage
We are committed to working with Native American tribes who have a historic affiliation with the area
around the Hermosa project. While there are no Native American trust lands near Hermosa, historic
habitation or use of the region by Indigenous Peoples may establish culturally significant connections.
We have completed initial surveys for cultural resources on both our patented lands and unpatented
mining claims and will continue to engage with Native American tribes who have historic affiliations to
gain a more thorough understanding of sensitive cultural resources.
Managing our environmental impact
An environmental management plan (EMP) has been developed for Hermosa that is consistent with the
South32 Environment Standard. Key aspects of the EMP include baseline studies, risk assessments and
mapping of key features with respect to biodiversity, ecosystems and water. The baseline studies have
included several biological studies and surveys, including for species listed under the Endangered
Species Act (ESA) and USFS sensitive species, as well as monitoring of surface water, ground water and
air quality. The ongoing collection, analysis and modelling of baseline information and survey data will
align with the South32 Environment Standard and support the required permits and approvals for
Hermosa.
Hermosa is in a semi-arid environment, with most rainfall occurring in the “monsoon” season of July
through October. Water resource monitoring and management plans have been developed to support
an understanding of the baseline conditions and numerical modelling of surface and groundwater
resources. Additional studies are planned for completion as part of the Taylor feasibility study.
Targeting net zero carbon operational emissions
Taylor has been designed as a low carbon operation, with the primary sources of carbon emissions being
residual diesel consumption and grid power. We have identified several opportunities to improve this
starting position, with active discussions to secure 100% renewable energy for site power and the
feasibility study to include further evaluation of the potential use of battery electric vehicles and
underground mining equipment. We are testing technology solutions to support this, with a trial of
electric vehicles planned at our Cannington zinc-lead-silver mine during FY22 and our ongoing
participation in the Electric Mine Consortium [footnote 13].
Commodities for a low carbon future
The proposed development of Taylor is consistent with our focus on reshaping our portfolio for a low
carbon future, increasing our exposure to base and precious metals and reducing our carbon intensity.
The metals produced at Taylor are expected to play a role in supporting global decarbonisation. Zinc
demand is expected to benefit from an increase in renewable energy infrastructure such as solar, where
it allows for higher energy conversion, and wind, given its use in protecting key elements from corrosion.
Silver is used in solar panels due to its superior electrical conductivity and has higher intensity of use in
electric vehicles compared to internal combustion engine (ICE) cars. In the medium term, the ongoing
growth in ICE vehicles sales will continue to see demand for lead-acid batteries grow, with lead demand
also expected to be supported by its use in renewable energy storage systems.
Taylor project summary
Key PFS assumptions and outcomes are summarised below.
Table 8: Taylor PFS assumptions
Mining
Mineral Resource estimate 138Mt averaging 3.82% zinc, 4.25% lead and 81g/t silver
Resource life ~22 years
Mining method Longhole open stoping with paste backfill
Mined ore grades Zinc 4.1%, Lead 4.5%, Silver 82g/t
Processing
Mill capacity ~4.3Mtpa
Concentrates Separate zinc and lead concentrates with silver credits
Zinc recoveries (in zinc concentrate) ~90%
Lead recoveries (in lead concentrate) ~91%
Silver recoveries (in lead concentrate) ~81%
Metal payability Zinc ~85%, Lead ~95%, Silver ~95% (in lead concentrate)
Zinc concentrate grade ~53%
Lead concentrate grade ~70%
Payable metal production
Zinc ~2.4Mt (~111kt annual average)
Lead ~3.0Mt (~138kt annual average)
Silver ~160Moz (~7.3Moz annual average)
Zinc equivalent [footnote 9] ~6.2Mt (~280kt annual average)
Capital costs
Direct capital expenditure ~US$1,230M
Indirect capital expenditure ~US$470M
Sustaining capital expenditure ~US$40M annual average
Schedule
First production FY27
Steady state production FY30-FY44
Operating costs
Mining costs ~US$35/t ore processed
Processing costs ~US$13/t ore processed
General and administrative costs ~US$10/t ore processed
Other operating unit costs ~US$23/t ore processed (incl. royalties)
Operating unit costs ~US$81/t ore processed
Zinc equivalent operating unit cost ~(US$0.71/lb) ZnEq (incl. lead and silver credits)
All-in sustaining cost [footnote 11] ~(US$0.05)/lb ZnEq (incl. lead and silver credits)
Fiscal terms
Corporate tax rate [footnote 14] ~26%
Royalties Average 2.4% private net smelter royalties
CLARK DEPOSIT SCOPING STUDY
Clark is a manganese-zinc-silver oxide deposit located adjacent, and up-dip of the Taylor Deposit, which
has a Mineral Resource estimate of 55 million tonnes, averaging 9.08% manganese, 2.31% zinc and 78
g/t silver using a NSR cut-off of US$175/t [footnote 4] in accordance with the JORC Code. The Clark
Deposit is interpreted as the upper oxidised, manganese-rich portion of the mineralised system, with
the resource extending from near surface to a depth of approximately 600m.
The Clark Deposit has the potential to underpin a second development at Hermosa. We recently
completed a scoping study [footnote 2] 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 our 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 CY22, 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.
Our study work 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 realise operating and capital efficiencies.
Figure 5: Clark and Taylor deposits (image can be viewed in the full announcement available on the
NSM)
REGIONAL EXPLORATION
Our third area of focus at Hermosa is unlocking value through exploration of our highly prospective
regional land package. Since our initial acquisition, we have increased our tenure by 66%, consolidating
our position in the most prospective areas. We have completed surface geophysics, soil sampling,
mapping and other exploration activity, resulting in the definition of a highly prospective corridor across
our land package which will be prioritised for future testing.
Within this highly prospective corridor, we plan to drill test the Flux prospect in the second half of CY22
following the receipt of required permits. The Flux prospect is located down-dip of an historic mining
area in carbonates that could host Taylor-like mineralisation [footnote 8]. Our ongoing exploration
strategy will focus on identifying, permitting and drilling new exploration targets across the land
package while continuing to refine our understanding of the regional geology.
Figure 6: Regional exploration (image can be viewed in the full announcement available on the NSM)
FOOTNOTES
1. Based on Taylor’s estimated all-in sustaining costs (AISC) in the PFS and the Wood Mackenzie Lead/Zinc Asset Profiles.
AISC includes operating unit costs (including royalties), treatment and refining charges (TCRCs), and sustaining capital
expenditure.
2. Clark Deposit scoping study cautionary statement: The scoping study referred to in this announcement is based on low-
level technical and economic assessments and is insufficient to support estimation of Ore Reserves or to provide
assurance of an economic development case at this stage, or to provide certainty that the conclusions of the scoping
study will be realised. The study is based on 60% Indicated and 40% Inferred Mineral Resources (refer to footnote 4 for
the cautionary statement).
3. Competent Persons Statement and cautionary statement – Exploration Results and Exploration Target: The information
in this announcement that relates to Exploration Results and Exploration Targets for Hermosa (including Peake) is based
on information compiled by David Bertuch, a Competent Person who is a Member of The Australasian Institute of Mining
and Metallurgy and is employed by South32. Mr Bertuch has sufficient experience that is relevant to the style of
mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent
Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources
and Ore Reserves’. Mr. Bertuch consents to the inclusion in the report of the matters based on his information in the
form and context in which it appears. The JORC Table 1 (sections 1 and 2) related to the Exploration Results and
Exploration Targets is included in Annexure 1. In respect of those Exploration Targets, the potential quantity and grade
is conceptual in nature. There has been insufficient exploration to determine a Mineral Resource and there is no
certainty that further exploration work will result in the determination of Mineral Resources.
4. Mineral Resource Statements for the Taylor and Clark deposits: The information in this announcement that relates to
Mineral Resources for the Taylor and Clark deposits is extracted from South32's FY21 Annual Report (www.south32.net)
published on 3 September 2021. The information was prepared by a Competent Person in accordance with the
requirements of the JORC Code. South32 confirms that it is not aware of any new information or data that materially
affects the information included in the original market announcement, and that all material assumptions and technical
parameters underpinning the estimates in the relevant market announcement continue to apply and have not
materially changed. South32 confirms that the form and context in which the Competent Person's findings are
presented have not been materially modified from the original market announcement.
5. Resource life is estimated using Mineral Resources (extracted from South32’s FY21 Annual Report published on 3
September 2021 and available to view on www.south32.net) and Exploration Target (details of which are available in
this announcement) converted to a run-of-mine basis using conversion factors, divided by the nominated run-of-mine
production rate on a 100% basis. Whilst South32 believes it has a reasonable basis to reference this resource life and
incorporate it within its Production Targets, it should be noted that resource life calculations are indicative only and do
not necessarily reflect future uncertainties such as economic conditions, technical or permitting issues. Resource life is
based on our current expectations of future results and should not be solely relied upon by investors when making
investment decisions.
6. Production Targets Cautionary Statement: The information in this announcement that refers to the Production Target
and forecast financial information is based on Measured (20%), Indicated (62%) and Inferred (14%) Mineral Resources
and Exploration Target (4%) for the Taylor Deposit. All material assumptions on which the Production Target and
forecast financial information is based is available in Annexure 1. The Mineral Resources underpinning the Production
Target have been prepared by a Competent Person in accordance with the JORC Code (refer to footnote 4 for the
cautionary statement). All material assumptions on which the Production Target and forecast financial information is
based is available in Annexure 2. There is low level of geological confidence associated with the Inferred Mineral
Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral
Resources or that the Production Target will be realised. The potential quantity and grade of the Exploration Target is
conceptual in nature. In respect of the Exploration Target used in the Production Target, there has been insufficient
exploration to determine a Mineral Resource and there is no certainty that further exploration work will result in the
determination of Mineral Resources or that the Production Target itself will be realised. The stated Production Target
is based on South32's current expectations of future results or events and should not be solely relied upon by investors
when making investment decisions. Further evaluation work and appropriate studies are required to establish sufficient
confidence that this target will be met. South32 confirms that inclusion of 18% tonnage (14% Inferred Mineral Resources
and 4% Exploration Target) is not the determining factor of the project viability and the project forecasts a positive
financial performance when using 82% tonnage (20% Measured and 62% Indicated Mineral Resources). South32 is
satisfied, therefore, that the use of Inferred Mineral Resources and Exploration Target in the Production Target and
forecast financial information reporting is reasonable.
7. Preferred case design capacity based on Taylor PFS outcomes.
8. Flux Exploration Target: The information in this announcement that relates to the Exploration Target for Flux is extracted
from “South32 Strategy and Business Update” published on 18 May 2021 and is available to view on www.south32.net.
The information was prepared by a Competent Person in accordance with the requirements of the JORC Code. South32
confirms that it is not aware of any new information or data that materially affects the information included in the
original market announcement. South32 confirms that the form and context in which the Competent Person’s findings
are presented have not been materially modified from the original market announcement.
9. Payable zinc equivalent was calculated by aggregating revenues from payable zinc, lead and silver, and dividing the total
revenue by the price of zinc. Average metallurgical recovery assumptions are 90% for zinc, 91% for lead and 81% for
silver in lead concentrate. FY21 average index prices for zinc (US$2,695/t), lead (US$1,992/t) and silver (US$25.50/oz)
(excluding treatment and refining charges) have been used.
10. Based on steady state production years (FY30 to FY44).
11. AISC includes Operating unit costs (including royalties), TCRCs and sustaining capital expenditure.
12. Lead and silver credits are calculated using FY21 average index prices for lead (US$1,992/t) and silver (US$25.50/oz).
13. South32 is a founding member of the Electric Mine Consortium, which aims to accelerate progress towards a fully
electrified zero carbon, zero particulates, mine. More information is available at www.electricmine.com.
14. Federal tax of 21.0% and Arizona state tax of 4.9% of taxable income, subject to applicable allowances. Hermosa has an
opening tax loss balance of approximately US$83M as at 30 June 2020. Property and severance taxes are also expected
to be paid. Based on the PFS schedule, we expect to commence paying income taxes from FY29.
About us
South32 is a globally diversified mining and metals company. Our purpose is to make a difference by
developing natural resources, improving people’s lives now and for generations to come. We are trusted
by our owners and partners to realise the potential of their resources. We produce bauxite, alumina,
aluminium, metallurgical coal, manganese, nickel, silver, lead and zinc at our operations in Australia,
Southern Africa and South America. With a focus on growing our base metals exposure, we also have
two development options in North America and several partnerships with junior explorers around the
world.
Investor Relations
Alex Volante Tom Gallop
T +61 8 9324 9029 T +61 8 9324 9030
M +61 403 328 408 M +61 439 353 948
E Alex.Volante@south32.net E Tom.Gallop@south32.net
Media Relations
James Clothier Jenny White
M +61 413 391 031 T +44 20 7798 1773
E James.Clothier@south32.net M +44 7900 046 758
E Jenny.White@south32.net
Further information on South32 can be found at www.south32.net.
Approved for release by Graham Kerr, Chief Executive Officer
JSE Sponsor: UBS South Africa (Pty) Ltd
17 January 2022
Forward-looking statements
This release contains forward-looking statements, including statements about trends in commodity
prices and currency exchange rates; demand for commodities; production forecasts; plans, strategies
and objectives of management; capital costs and scheduling; operating costs; anticipated productive
lives of projects, mines and facilities; and provisions and contingent liabilities. These forward-looking
statements reflect expectations at the date of this release, however they are not guarantees or
predictions of future performance. They involve known and unknown risks, uncertainties and other
factors, many of which are beyond our control, and which may cause actual results to differ materially
from those expressed in the statements contained in this release. Readers are cautioned not to put
undue reliance on forward-looking statements. Except as required by applicable laws or regulations, the
South32 Group does not undertake to publicly update or review any forward-looking statements,
whether as a result of new information or future events. Past performance cannot be relied on as a
guide to future performance. South32 cautions against reliance on any forward looking statements or
guidance, particularly in light of the current economic climate and the significant volatility, uncertainty
and disruption arising in connection with COVID-19.
Annexure 1: JORC Code Table 1
HERMOSA PROJECT – EXPLORATION RESULTS
The following table provides a summary of important assessment and reporting criteria used for the
reporting of Taylor sulphide exploration results for the Hermosa project, which is located in southern
Arizona, USA (Figure 1), in accordance with the Table 1 checklist in The Australasian Code for the
Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code, 2012 Edition)
on an ‘if not, why not’ basis.
Section 1 Sampling Techniques and Data
(Criteria in this section apply to all succeeding sections.)
Criteria Commentary
Sampling techniques • The drilling that supports the exploration results is located outside
of the current Taylor Mineral Resource estimate declared as at 30
June 2021 in the South32 Annual Report.
A total of 53 diamond drill holes (HQ/NQ) totalling 73,632 metres
have been drilled across the Taylor sulphide mineralisation. In order
to define mineralisation continuity, the drilling information used to
inform the resource is used for geological interpretation of the
exploration results. In addition, the geological model also reflects
input from near-surface reverse circulation (RC) drilling. All drilling is
at predominantly 1.5m (5’) intervals on a
half core basis.
• A heterogeneity study is yet to be concluded to determine sample
representivity.
• Core is competent and sample representivity is monitored using
predominantly quarter or half core field duplicates submitted at a
rate of approximately 1:40 samples. Field duplicates located within
mineralisation envelopes demonstrate 70–90% performance to
within 30% of original sample splits.
• Core assembly, interval mark-up, recovery estimation (over the 3m
drill string) and photography all occur prior to sampling and follow
documented procedures.
• Sample size reduction during preparation involves crushing and
splitting of HQ (95.6mm) or NQ (75.3mm) half-core.
Drilling techniques • Data used for exploration results is based on logging and sampling of
HQ diamond core, reduced to NQ in areas of difficult drilling. Triple
and split-tube drilling methods were also employed in cases where
conditions required these mechanisms to improve recovery.
• All drill core has been oriented using the Boart Longyear ‘Trucore’
system since mid-August 2018. In Q3 FY20, acoustic televiewer data
capture was implemented for downhole imagery for the majority of
drilling to improve orientation and geotechnical understanding.
Structural measurements from oriented drilling have been
incorporated in geological modelling to assist with fault
interpretation.
Drill sample recovery • Prior to October 2018, core recovery was determined by summation
of individual core pieces within each 3m drill string. Recovery for the
drill string has since been measured after oriented core alignment
and mark-up.
• Core recovery is recorded for all diamond drill holes. Recovery of
holes for the ranging and targeting exercise exceeds 96%.
• Poor core recovery can occur when drilling overlying oxide material
and in major fault zones. To maximise recovery, drillers vary speed,
pressure and composition of drilling muds, reduce HQ to NQ core
size and use triple tube and ‘3 series’ drill bits.
• When core recovery is compared to Zn, Pb and Ag grades for both a
whole data set and within individual lithology, there is no discernible
relationship.
• Correlation analysis suggests there is no relationship between core
recovery and depth except where structure is considered. There are
isolated cases where lower recovery is localised at intersections of
the Taylor sulphide carbonates with a major thrust structure.
Logging • The entire length of core is photographed and logged for lithology,
alteration, structure, rock quality designation (RQD), and
mineralisation.
• Logging is both quantitative and qualitative; there are a number of
examples including estimation of mineralisation percentages and
association of preliminary interpretative assumptions with
observations.
• All logging is peer reviewed against core photos and in the context
of current geological interpretation and surrounding drill holes
during geological model updates.
• Logging is to a level of detail to support the exploration results.
Sub-sampling • Sawn half core and barren whole core samples are taken on
techniques and predominantly 1.5m intervals for the entire drill hole after logging.
sample preparation Mineralisation is highly visual. Sampling is also terminated at litho-
structural and mineralogical boundaries to reduce the potential for
boundary/dilution effects at a local scale.
• Sample lengths can vary between 0.75m and 2.3m. The selection of
the sub-sample size is not supported by sampling studies.
• Sample preparation has occurred offsite at an ISO17025-certified
laboratory since the Taylor sulphide deposit discovery. This was
initially undertaken by Skyline until 2012, then by Australian
Laboratory Services (ALS). Samples submitted to ALS are generally 4–
6kg in weight. Sample size reduction during preparation involves
crushing of HQ (95.6mm) or NQ (75.3mm) half or whole core,
splitting of the crushed fraction, pulverisation, and splitting of the
sample for analysis. A detailed description of this process is as
follows:
o The entire half or whole core samples are crushed and rotary
split in preparation for pulverisation. Depending on the
processing facility, splits are done via riffle or rotary splits for
pulp samples.
o Fine crushing occurs until 70% of the sample passes 2mm mesh.
A 250g split of finely crushed sub-sample is obtained via rotary
or riffle splitter and pulverised until 85% of the material is less
than 75µm. These 250g pulp samples are taken for assay, and
0.25g splits are used for digestion.
• ALS protocol requires 5% of samples to undergo a random
granulometry QC test. Samples are placed on 2 micron sieve and
processed completely to ensure the passing mesh criteria is
maintained. Pulps undergo similar tests with finer meshes. Results
are loaded to an online portal for review to client.
• Sample preparation precision is also monitored with blind laboratory
duplicates assayed at a rate of 1:50 submissions.
• Coarse crush preparation duplicate pairs show that 80% of all Zn and
Ag pairs for sulphide mineralisation report within +/-20% of original
samples. Performance drops off for Pb mineralisation, with less than
70% of duplicates reporting within the +/-20% limits.
• More than 85% of pulp duplicates report within a 10% variance for
Zn and Ag within all pulp duplicates. Performance for Pb is
demonstrably poorer, similar to the preparation duplicates, with less
than 80% of all pulp duplicates reporting within this tolerance.
• Sub-sampling techniques and sample preparation are adequate for
providing quality assay data for declaring exploration results but will
benefit from planned studies to optimise sample selectivity and
quality control procedures.
Quality of assay data • Samples of 0.25g from pulps are processed at ALS Vancouver using
and laboratory tests ME-ICP61, where these are totally digested using a four-acid method
followed by analysis with a combination of Inductively Coupled
Plasma – Mass Spectrometry (ICP-MS) and Inductively Coupled
Plasma – Atomic Emission Spectroscopy (ICP-AES) determination for
33 elements. Overlimit values for Ag, Pb, Zn, and Mn utilise OG-62
analysis. In November 2020, Hermosa switched to the analytical
method ME-MS61 for the four acid 48 element assay for additional
elements and improved detection limits alongside the addition of
overlimit packages of S-IR07 for S and ME-ICP81 for Mn. Digestion
batches of 36 samples plus four internal ALS control samples (one
blank, two CRM, and one duplicate) are processed using a four-acid
digestion. Analysis is done in groups of three larger digestion
batches. Instruments are calibrated for each batch prior to and
following the batch.
• ALS internal QA/QC samples are continuously monitored for
performance. In the case of a blank failure, for example, the entire
batch is redone from the crushing stage. If one CRM fails, data
reviewers internal to ALS examine the location of the failure within
the batch and determine how many samples around the failure
should be reanalysed. If both CRMs fail, the entire batch is rerun. No
material failures have been observed from the data.
• Coarse and fine-grained certified silica blank material submissions,
inserted at the beginning and end of every work order of
approximately 200 samples, indicate a lack of systematic sample
contamination in sample preparation and ICP solution carryover.
While systematic contamination issues are not observed for the
blanks, the nature of the blanks themselves and suitability for use in
QA/QC for polymetallic deposits is in question.
o Failures for blanks are noted at greater than ten times detection
limit or recommended upper limit for the certified blank
material for each analyte, failures range from 0% for Ag
(>5ppm), 1% for Cu (>10ppm), 3.5% for Pb (>20ppm), and 7.5%
for Zn (>20ppm), and indicate that the blanks themselves are
not truly suited for polymetallic deposits. In particular, a coarse
blank submitted from 2017–2018 demonstrated consistent
contamination above detection limits for Zn, Cu, Mn, and other
elements. This has since been replaced with a better
performing coarse blank of the end of 2018.
o The nature of the blanks and the failures observed are very low
for Ag and Cu, and failures for blanks for Zn and Pb are in the
hundreds of ppm. No consistent bias has been observed and the
magnitude of impacts at the low end for the blanks are very
limited. It is not likely to impact the exploration results.
• A range of certified reference materials (CRM) are submitted at a
rate of 1:40 samples to monitor assay accuracy. The CRM failure rate
is very low, ranging from 0.1% to 1.3% depending on analyte,
demonstrating reliable laboratory accuracy.
• External laboratory pulp duplicates and CRM checks have been
submitted to the Inspectorate (Bureau Veritas) laboratory in Reno
from November 2017 to 2018 and resumed in March 2021 at a rate
of 1:100 to monitor procedural bias. Between 84% and 89% of
samples for Zn, Pb and Ag were within expected tolerances of +/-
20% when comparing three-acid (Inspectorate) and four-acid (ALS)
digest methods. No significant bias was determined.
• The nature and quality of assaying and laboratory procedures are
appropriate for supporting disclosure of exploration results.
Verification of • Core photos of the entire hole are reviewed by alternative company
sampling and personnel (modelling geologists) to verify significant intersections
assaying and finalise geological interpretation of core logging.
• Sampling is recorded digitally and uploaded to an Azure SQL project
customised database (Plexer) via an API provided by the ALS
laboratory and the external laboratory information management
system (LIMS). Digital transmitted assay results are reconciled upon
upload to the database.
• No adjustment to assay data has been undertaken.
Location of data • Drill hole collar locations are surveyed by registered surveyors using
points a GPS Real Time Kinematic (RTK) rover station correlating with the
Hermosa project RTK base station and Global Navigation Satellite
Systems with up to 1cm accuracy.
• Downhole surveys prior to mid-August 2018 were taken with a
‘TruShot’ single shot survey tool every 76m and at the bottom of the
hole. From 20 June 2018 to
14 August 2018, surveys were taken at the same interval with both
the single shot and a Reflex EZ-Gyro, before the Reflex EZ-Gyro was
used exclusively.
• The Hermosa project uses the Arizona State Plane (grid) Coordinate
System, Arizona Central Zone, International Feet. The datum is
NAD83 with the vertical heights converted from the ellipsoidal
heights to NAVD88 using GEOID12B.
• All drill hole collar and downhole survey data was audited against
source data.
• Survey collars have been compared against a one-foot topographic
aerial map. Discrepancies exceeding 1.8m were assessed against a
current aerial flyover and the differences attributed to surface
disturbance from construction development and/or road building.
• Survey procedures and practices result in data location accuracy
suitable for mine planning.
Data spacing and • Drill hole spacing ranges from 60m to 600m. The spacing supplies
distribution sufficient information for assessment of exploration results.
• Geological modelling has determined that drill spacing is sufficient
to establish the degree of geological and grade continuity necessary
to support review of exploration results.
Orientation of data in • For geological modelling, mineralisation varies in dip between
relation to geological 30°NW in the upper Taylor Sulphide domain and between 20°N and
structure 30°N in the lower Taylor Deeps and the Peake Copper-Skarn
prospect. Most drilling is oriented vertically and at a sufficiently high
angle to allow for accurate representation of grade and tonnage
using three-dimensional modelling methods.
• There is indication of sub-vertical structures, possibly conduits for or
offsetting mineralisation, which have been accounted for at a
regional scale through the integration of mapping and drilling data.
Angled, oriented core drilling introduced from October 2018 is
designed to improve understanding of the relevance of these
structures to mineralisation.
Sample security • Samples are tracked and reconciled through a sample numbering
and dispatch system from site to the ALS sample distribution and
preparation facility in Tucson. The ALS LIMS assay management
system provides an additional layer of sample tracking from the
point of sample receipt. Movement of sample material from site to
the Tucson distribution and preparation facility is a combination of
ALS dedicated transport and project contracted transport.
Distribution to other preparation facilities and Vancouver is
managed by ALS dedicated transport.
• Assays are reconciled and results processed in an Azure SQL project
customised database (Plexer) which has password and user level
security.
• Core is stored in secured onsite storage prior to processing. After
sampling, the remaining core, returned sample rejects and pulps are
stored at a purpose-built facility that has secured access.
• All sampling, assaying and reporting of results are managed with
procedures that provide adequate sample security.
Audits or reviews • CSA Global audited the sampling methodology and database for the
FY21 Mineral Resource estimate and noted that the sampling and
QA/QC measures showed the database to be adequate.
• An internal database audit was undertaken in February 2019 for
approximately 10% of all drilling intersecting sulphide mineralisation
(24 of 242 holes). Data was validated against original data sources
for collar, survey, lithology, alteration, mineralisation, structure,
RQD and assay (main and check assays). The overall error rates
across the database were found to be very low. Isolated issues
included the absence of individual survey intervals and minor errors
in collar survey precision. All were found to have minimal impact on
resource estimation.
• Golder and Associates completed an independent audit of the
exploration results including QA/QC of reported drillholes outside
the FY21 Taylor Sulphide Mineral Resource estimate, adherence to
the Resource Range Analysis process, inputs, assumptions and
outcomes. Outcomes are considered appropriate for public
reporting of exploration results.
Section 2 Reporting of Exploration Results
(Criteria listed in the preceding section also apply to this section.)
Criteria Commentary
Mineral tenement • The Hermosa project mineral tenure (Figure 2) is secured by 30
and land tenure patented mining claims totalling 228 hectares that have full surface
status and mineral rights owned fee simple. These claims are retained in
perpetuity by annual real property tax payments to
Santa Cruz County in Arizona and have been verified to be in good
standing until
31 August 2022.
• The patented land is surrounded by 1,957 unpatented lode mining
claims totalling 13,804 hectares. These claims are retained through
payment of federal annual maintenance fees to the Bureau of Land
Management (BLM) and filing record of payment with the Santa Cruz
County Recorder. Payments for these claims have been made for the
period up to their annual renewal on or before 1 September 2022.
• Title to the mineral rights is vested in South32’s wholly owned
subsidiary
Arizona Minerals Inc. (AMI). No approval is required in addition to
the payment of fees for the claims.
Exploration done by • ASARCO LLC (ASARCO) acquired the Property in 1939 and completed
other parties intermittent drill programs between 1940 and 1991. ASARCO initially
targeted silver and lead mineralisation near historical workings of
the late 19th century. ASARCO identified silver-lead-zinc bearing
manganese oxides in the manto zone of the overlying
Clark Deposit between 1946 and 1953.
• Follow-up rotary air hammer drilling, geophysical surveying, detailed
geological, and metallurgical studies on the manganese oxide manto
mineralisation between the
mid-1960s and continuing to 1991 defined a heap leach amenable,
low-grade manganese and silver resource, reported in 1968 and
updated in 1975, 1979 and 1984. The ASARCO drilling periods
account for 98 drill holes from the database.
• In March 2006, AMI purchased the ASARCO property and completed
a re-assay of pulps and preliminary SO2 leach tests on the manto
mineralisation to report a
Preliminary Economic Assessment (PEA) in February 2007. Drilling of
RC and diamond holes between 2006 and 2012 focused on the Clark
Deposit (235 holes) and early definition of the Taylor Deposit
sulphide mineralisation (16 holes), first intersected in 2010. Data
collected from the AMI 2006 campaign is the earliest information
contributing to estimation of the Taylor Deposit Mineral Resource.
• AMI drill programs between 2014 and August 2018 (217 diamond
holes) focused on delineating Taylor Deposit sulphide
mineralisation, for which Mineral Resource estimates were reported
in compliance to NI 43-101 (Foreign Estimate) in
November 2016 and January 2018.
Geology • The regional geology is set within Lower-Permian carbonates,
underlain by Cambrian sediments and Proterozoic granodiorites. The
carbonates are unconformably overlain by Triassic to late-
Cretaceous volcanic rocks (Figures 3 and 4). The regional structure
and stratigraphy are a result of late-Precambrian to early-Palaeozoic
rifting, subsequent widespread sedimentary aerial and shallow
marine deposition through the Palaeozoic Era, followed by Mesozoic
volcanism and late batholitic intrusions of the Laramide Orogeny.
Mineral deposits associated with the Laramide Orogeny tend to align
along regional NW structural trends.
• Cretaceous-age intermediate and felsic volcanic and intrusive rocks
cover much of the Hermosa project area and host low-grade
disseminated silver mineralisation, epithermal veins and silicified
breccia zones that have been the source of historic silver and lead
production.
• Mineralisation styles in the immediate vicinity of the Hermosa
project include the carbonate replacement deposit (CRD) style zinc-
lead-silver base metal sulphides of the Taylor Deposit and deeper
skarn-style copper-zinc-lead-silver base metal sulphides of the Peake
prospect and an overlying manganese-silver oxide manto deposit of
the Clark Deposit.
• The Taylor Deposit comprises the overlying Taylor Sulphide, and
Taylor Deeps domains that are separated by a thrust fault.
Approximately 600–750m lateral and south to the Taylor Deeps
domain, the Peake copper-skarn sulphide mineralisation is identified
in older lithological stratigraphic units along the interpreted
continuation of the thrust fault (Figures 5 and 6).
• The Taylor Sulphide Deposit extends to a depth of around 1,000m
and is hosted within approximately a 450m thickness of Palaeozoic
carbonates that dip 30°NW, identified as the Concha, Scherrer and
Epitaph Formations.
• Taylor Sulphide mineralisation is dominantly constrained within a
tilted and thrusted carbonate stratigraphy and to a lesser degree the
overlying volcanic stratigraphy. The mineralising system is yet to be
fully drill tested in multiple directions. At Taylor, the sulphide
mineralisation is constrained up-dip where it merges into the
overlying oxide manto mineralisation of the Clark Deposit,
representing a single contiguous mineralising system.
• The north-bounding edge of the thrusted carbonate rock is marked
by a thrust fault where it ramps up over the Jurassic/Triassic ‘Older
Volcanics’ and ‘Hardshell Volcanics’. This interpreted pre-
mineralising structure that created the sequence of carbonates also
appears to be a key mineralising conduit. The thrust creates a
repetition of the carbonate formations below the Taylor Sulphide
domain, which host the Taylor Deeps mineralisation.
• The Taylor Deeps mineralisation dips 10°N to 30°N, is approximately
100m thick, and primarily localised near the upper contact of the
Concha Formation and the unconformably overlying ‘Older
Volcanics’. Some of the higher-grade mineralisation is also
accumulated along a westerly plunging lineation intersection where
the Concha Formation contacts the Lower Thrust. Mineralisation has
not been closed off down-dip or along strike.
• Lateral to the Taylor Deeps mineralisation, skarn sulphide
mineralisation is identified in older lithological stratigraphic units
along the interpreted continuation of the thrust fault. This creates
an interpreted continuous structural and lithological controlled
system from the deeper skarn Cu domain into Taylor Deeps, Taylor
Sulphide, and associated volcanic hosted mineralisation and the
Clark oxide Deposit.
Drill hole Information • A drill hole plan (Figure 4) provides a summary of drilling collar
locations that support the exploration results and surface geology.
Figure 5 provides a drill hole plan relative to the Taylor FY21 and
Clark FY20 Mineral Resource domains, and the Peake copper-skarn
prospect. Figure 6 shows a cross section relative to key inputs in
Figure 5 alongside the Taylor thrust and simplified geology.
• Table 1 summarises all the drill holes that support Exploration
Targets.
• Table 2 summarises all significant intersections.
• All drill hole information, including tabulations of drill hole positions
and depths is stored within project data files on a secure company
server.
• Hole depths vary between 550m and 2,000m.
Data aggregation • Mineralisation domains were created within bounding litho-
methods structural zones using both manually interpreted volumes and Radial
Based Function (RBF) indicator interpolation of the cumulative in-
situ value of metal content. The metal content descriptor, “Metval”,
is calculated by summing the multiplication of economic analyte
grades for Zn, Pb, Ag and Cu, price and recovery. Metval cut-off
ranges for mineralisation domains range from US$5-7.5 for the
different litho-structural domains. Material above the Metval
cut-off was modelled utilising the indicator numerical model
function in Leapfrog Geo[TM] to create volumes.
• Significant assay intercepts are reported as length-weighted
averages exceeding either 2% ZnEq or 0.2% Cu.
• No top cuts are applied to intercept calculations.
• ZnEq (%) is zinc equivalent which accounts for combined value of
zinc, lead and silver. Metals are converted to ZnEq via unit value
calculations using long term consensus metal price assumptions and
relative metallurgical recovery assumptions. For the Exploration
Target, overall metallurgical recoveries differ for geological domains
and vary from
87% to 94% for zinc, 94% to 95% for lead, and 87% to 92% for silver.
Exploration Target tonnage and grade is reported above an NSR that
accounts for payability of metals in concentrate products, which
depending on other factors, may decrease the total payable
recovered metal. Average payable metallurgical recovery
assumptions are zinc (Zn) 90%,
lead (Pb) 91%, and silver (Ag) 81% and metals pricing assumptions
are South32’s prices for the December 2021 quarter. The formula
used for calculation of zinc equivalent is
ZnEq = Zn (%) + 0.718 * Pb (%) + 0.0204 * Ag (g/t).
Relationship between • Near vertical drilling (75–900) amounts to the majority of holes used
mineralisation widths in the creation of the geology model. Where they intersect the low
and intercept lengths to moderately dipping (30°) stratigraphy the intersection length can
be up to 15% longer than true-width.
• Since August 2018, drilling has been intentionally angled, where
appropriate, between 60° and 75° to maximise the angle at which
mineralisation is intersected.
• The mineralisation is modelled in 3D to appropriately account for
sectional bias or apparent thickness issues which may result from 2D
interpretation.
Diagrams • Relevant maps and sections are included with this market
announcement.
Balanced reporting • Exploration results are reported considering drill holes completed
outside the disclosed Mineral Resource estimate as at 30 June 2021.
All drill hole intersections are considered in this assessment for
balanced reporting. A list of drill holes is included as an annexure to
this announcement.
Other substantive • Aside from drilling, the geological model is compiled from local and
exploration data regional mapping, geochemistry sampling and analysis, and
geophysical surveys.
• Magneto-telluric (MT) and induced polarisation surveys (IP) were
conducted with adherence to industry standard practices by
Quantec Geosciences Inc. In most areas, the MT stations were
collected along N–S lines with a spacing of 200m. Spacing between
lines is 400m. Some areas were collected at 400m spacing within
individual lines. IP has also been collected, both as 2D lines and as
2.5D swaths, collected with a variable spacing of data receivers. IP
surveying is ongoing over the project.
• Quality control of geophysical data includes using a third-party
geophysical consultant to verify data quality and provide secondary
inversions for comparison to Quantec interpretations.
Further work • The following work is planned to be conducted:
o The deeper Peake Copper-skarn prospect will be assessed in
detail.
o Additional drilling of the Peake Copper-skarn prospect is
planned to occur in CY22, guided by the outcomes of a detailed
assessment in the area adjacent to Taylor Deeps where very
little drilling is completed so far.
o Additional ongoing drilling will assess Taylor and Taylor Deeps
extensional opportunities.
o Exploratory drilling underneath and downdip of the historic
mine workings at the Flux prospect is planned to occur in CY22,
pending permit approvals.
o Additional geophysics over the project is ongoing.
Figure 1: Regional location plan (image can be viewed in the full announcement available on the NSM)
Figure 2: Hermosa project tenement map (image can be viewed in the full announcement available on
the NSM)
Figure 3: Hermosa project regional geology (image can be viewed in the full announcement available
on the NSM)
Figure 4: Taylor Deposit local geology and Exploration Target collar locations (image can be viewed in
the full announcement available on the NSM)
Figure 5: Plan view of the Taylor and Clark Mineralisation Domains with exploration drill holes and the
Peake Copper-Skarn Prospect (image can be viewed in the full announcement available on the NSM)
Figure 6: Cross-section through the Taylor and Clark mineralisation domains showing exploration drill
holes, simplified geology, Taylor Thrust and the Peake Copper-Skarn Prospect – looking east (image
can be viewed in the full announcement available on the NSM)
Table 1: Hole ID, collar location, dip, azimuth and drill depth
Hole ID East (UTM) North (UTM) Elevation (m) Dip Azimuth TD Depth (m)
HDS-345 525881 3480733 1603.2 -90 0 1257.9
HDS-353 525781 3480612 1592.8 -90 0 1701.5
HDS-372 526061 3481515 1564.6 -90 0 1780.9
HDS-380 526689 3480757 1580.8 -60 230 1321.9
HDS-395 525553 3482168 1502.4 -90 0 1642.0
HDS-420 525785 3480607 1592.8 -82 85 1372.8
HDS-428 526180 3481454 1578.1 -75 355 1633.6
HDS-443 526645 3480958 1525.9 -45 230 492.9
HDS-444 526347 3481088 1566.2 -65 230 825.1
HDS-451 526182 3481448 1579.4 -75 230 656.7
HDS-462 526223 3481409 1574.6 -75 230 792.8
HDS-465 526268 3481353 1569.8 -75 230 827.2
HDS-486 527398 3480552 1602.0 -75 85 1142.1
HDS-490 527406 3480648 1593.8 -60 70 1126.8
HDS-491 525690 3482016 1501.9 -90 0 1595.0
HDS-509 525701 3480691 1602.1 -90 0 1424.8
HDS-519 525822 3480685 1602.0 -90 0 1422.2
HDS-520 525963 3480611 1573.1 -90 0 1562.7
HDS-524 526002 3479665 1658.8 -90 0 1220.0
HDS-526 528068 3479975 1571.1 -65 15 1617.6
HDS-527 526339 3480706 1542.5 -63 125 1288.4
HDS-528 525716 3480747 1610.3 -90 0 1724.3
HDS-530 525583 3480735 1604.3 -82 230 1446.9
HDS-532 526001 3479666 1659.1 -60 150 1075.9
HDS-533 526092 3480386 1627.3 -65 120 1257.6
HDS-535 526026 3479462 1678.1 -60 190 1419.8
HDS-536 527211 3480625 1567.4 -60 0 1206.1
HDS-538 525878 3480741 1603.3 -70 130 1526.1
Hole ID East (UTM) North (UTM) Elevation (m) Dip Azimuth TD Depth (m)
HDS-540 526101 3480387 1627.3 -70 220 1528.9
HDS-542 527211 3480624 1567.1 -70 0 1574.0
HDS-545 525960 3479775 1665.7 -60 335 1427.1
HDS-549 525585 3480738 1604.4 -78 200 1813.0
HDS-551 525963 3479774 1665.5 -75 270 1542.6
HDS-552 525806 3480620 1592.9 -70 165 1851.4
HDS-553 526860 3480624 1560.5 -75 220 1524.0
HDS-554 526992 3480642 1550.9 -65 35 1314.9
HDS-557 525963 3479776 1665.5 -60 300 1199.1
HDS-569 526861 3480630 1560.3 -62 205 900.1
HDS-571 526868 3480782 1543.4 -66 45 961.0
HDS-598 527348 3480633 1606.7 -75 333 1287.9
HDS-605 526678 3480806 1575.7 -66 185 1468.4
HDS-627 525814 3481856 1502.2 -60 20 1891.9
HDS-661 525782 3480619 1593.6 -72 179 1981.2
HDS-662 525782 3480619 1593.6 -76 190 1985.2
HDS-663 525592 3480733 1603.6 -70 175 1980.6
HDS-668 525817 3481856 1502.4 -60 20 1905.0
HDS-691 525592 3480734 1603.9 -68 180 2079.0
HDS-711 526863 3480628 1560.2 -55 218 776.3
HDS-714 527351 3480641 1606.2 -52 73 1184.8
HDS-715 527404 3480509 1607.7 -65 75 817.2
HDS-717 525592 3480735 1603.9 -70 175 1782.5
HDS-763 525971 3479591 1629.9 -78 15 1943.4
HDS-797 526361 3481170 1560.0 -55 108 551.1
Table 2: Significant intersections
From To Width Zinc Lead Silver Copper
Hole ID Cut off
(m) (m) (m) (%) (%) (ppm) (%)
HDS-345 No significant intersection
966.2 976.0 2% ZnEq 9.8 12.2 8.2 77 0.69
HDS-353 Including
966.2 971.4 2% ZnEq 5.2 22.0 14.8 130 1.21
312.4 318.5 2% ZnEq 6.1 1.9 0.7 31 0.03
HDS-372
458.1 463.6 2% ZnEq 5.5 4.8 2.1 90 0.04
878.1 880.4 2% ZnEq 2.3 2.6 1.8 362 0.33
HDS-380
898.7 906.3 2% ZnEq 7.6 1.0 1.9 142 0.23
HDS-395 448.7 454.3 2% ZnEq 5.6 3.3 3.7 55 0.08
HDS-420 452.5 465.3 2% ZnEq 12.8 2.5 1.1 73 0.11
266.4 269.3 2% ZnEq 2.9 3.6 1.2 108 0.01
HDS-428
1507.7 1516.5 2% ZnEq 8.8 1.5 1.8 77 0.19
HDS-443 No significant intersection
691.0 716.6 2% ZnEq 25.6 1.4 0.7 15 0.04
Including
HDS-444 709.3 716.6 2% ZnEq 7.3 3.1 1.2 22 0.04
790.0 793.1 2% ZnEq 3.1 2.5 1.2 273 0.00
803.1 809.5 2% ZnEq 6.4 1.5 2.1 69 0.18
351.1 363.3 2% ZnEq 12.2 1.4 0.5 13 0.00
HDS-451
Including
357.8 363.3 2% ZnEq 5.5 1.9 0.8 17 0.01
HDS-462 428.9 432.2 2% ZnEq 3.4 0.9 1.3 48 0.06
HDS-465 322.6 335.6 2% ZnEq 13.0 1.0 0.4 71 0.09
118.0 131.7 2% ZnEq 13.7 0.1 0.9 64 0.04
155.4 189.6 2% ZnEq 34.1 0.1 0.6 86 0.09
HDS-486 Including
169.8 189.6 2% ZnEq 19.8 0.1 1.0 101 0.15
249.8 290.9 2% ZnEq 41.1 1.1 1.9 57 0.09
191.1 197.2 2% ZnEq 6.1 0.1 0.4 77 0.08
364.8 401.4 2% ZnEq 36.6 0.1 1.1 69 0.04
HDS-490 Including
379.5 399.9 2% ZnEq 20.4 0.1 1.6 97 0.05
442.6 450.2 2% ZnEq 7.6 5.4 0.0 4 0.00
381.9 400.8 2% ZnEq 18.9 13.1 8.3 137 0.39
HDS-491 Including
387.1 399.1 2% ZnEq 12.0 17.3 11.5 171 0.42
HDS-509 846.4 851.0 2% ZnEq 4.6 1.4 0.7 21 0.10
389.2 393.8 2% ZnEq 4.6 0.3 0.3 688 0.33
HDS-519
731.5 736.1 2% ZnEq 4.6 3.1 1.6 32 0.10
684.9 689.3 2% ZnEq 4.4 2.7 1.6 39 0.37
HDS-520 694.9 704.4 2% ZnEq 9.4 1.7 1.7 25 0.08
1049.0 1053.7 2% ZnEq 4.7 1.5 1.7 37 0.37
HDS-524 No significant intersection
46.3 52.7 2% ZnEq 6.4 0.0 0.1 100 0.01
HDS-526
61.3 84.4 2% ZnEq 23.2 0.0 0.3 113 0.03
HDS-527 191.1 200.3 2% ZnEq 9.1 1.2 0.9 23 0.00
HDS-528 No significant intersection
840.3 846.4 0.2% Cu 6.1 0.1 0.0 13 0.59
HDS-530 904.3 910.4 0.2% Cu 6.1 0.3 0.1 14 0.39
1407.6 1419.1 2% ZnEq 11.6 1.8 1.1 68 0.24
HDS-532 76.5 83.8 2% ZnEq 7.3 1.3 0.8 193 0.15
HDS-533 No significant intersection
HDS-535 No significant intersection
HDS-536 No significant intersection
HDS-538 1445.4 1451.9 2% ZnEq 6.6 0.1 1.2 74 0.03
1279.2 1389.0 0.2% Cu 109.7 0.1 0.3 15 0.62
Including
HDS-540
1303.6 1309.7 0.2% Cu 6.1 0.2 0.4 61 3.48
1469.7 1488.0 0.2% Cu 18.3 0.0 0.0 10 0.63
128.6 133.2 2% ZnEq 4.6 0.0 0.5 80 0.03
HDS-542
800.3 809.9 2% ZnEq 9.6 0.8 0.8 30 0.00
HDS-545 No significant intersection
HDS-549 1169.5 1175.6 0.2% Cu 6.1 1.5 1.6 312 1.92
1100.6 1111.6 0.2% Cu 11.0 0.0 0.2 10 0.39
HDS-551 1254.9 1280.8 0.2% Cu 25.9 0.0 0.0 10 0.54
1294.5 1372.8 0.2% Cu 78.3 0.0 0.1 10 0.51
709.3 714.8 0.2% Cu 5.5 11.2 5.5 64 0.12
HDS-552 1265.8 1273.9 0.2% Cu 8.1 0.2 0.5 27 0.39
1308.2 1384.7 0.2% Cu 76.5 0.2 0.4 25 1.52
From To Width Zinc Lead Silver Copper
Hole ID Cut off
(m) (m) (m) (%) (%) (ppm) (%)
Including
1309.9 1328.6 0.2% Cu 18.8 0.1 0.2 40 2.77
And
1364.3 1384.7 0.2% Cu 20.4 0.1 0.3 37 2.44
Including
1375.3 1384.7 0.2% Cu 9.5 0.1 0.3 62 4.45
1478.9 1484.8 0.2% Cu 5.9 1.0 1.5 57 0.41
315.8 340.5 2% ZnEq 24.7 3.4 3.3 266 0.32
Including
HDS-553
315.8 325.2 2% ZnEq 9.4 3.9 8.5 654 0.81
332.8 340.5 2% ZnEq 7.6 5.8 0.1 40 0.03
181.7 197.8 2% ZnEq 16.2 0.4 5.8 139 0.06
HDS-554
1138.3 1140.9 2% ZnEq 2.6 3.9 6.4 152 0.03
HDS-557 No significant intersection
HDS-569 142.3 147.2 2% ZnEq 4.9 3.6 2.4 61 0.03
134.4 166.4 2% ZnEq 32.0 0.7 0.8 94 0.12
HDS-571 691.6 698.9 2% ZnEq 7.3 4.7 3.4 56 0.14
743.3 750.7 2% ZnEq 7.5 7.6 18.5 296 0.11
HDS-598 No significant intersection
447.1 452.9 2% ZnEq 5.8 2.6 0.9 116 0.19
HDS-605 512.2 531.6 2% ZnEq 19.4 0.2 1.2 51 0.08
842.5 845.8 2% ZnEq 3.4 2.1 2.4 196 0.30
HDS-627 349.9 354.5 2% ZnEq 4.6 15.2 14.9 459 0.21
1298.4 1305.2 2% ZnEq 6.7 0.6 3.4 249 0.89
1322.2 1374.6 0.2% Cu 52.4 0.1 1.1 105 1.73
Including
1322.2 1346.0 0.2% Cu 23.8 0.1 0.8 81 3.32
And
HDS-661
1322.2 1330.1 0.2% Cu 7.9 0.1 0.4 81 7.89
1386.8 1460.6 0.2% Cu 73.8 0.5 0.7 67 1.06
Including
1399.6 1410.3 0.2% Cu 10.7 0.7 1.5 227 2.84
1555.1 1573.1 0.2% Cu 18.0 3.2 1.4 87 0.37
1316.4 1329.2 0.2% Cu 12.8 3.4 4.4 137 0.95
HDS-662
1540.8 1546.7 2% ZnEq 5.9 5.9 2.1 250 0.45
1580.1 1591.8 0.2% Cu 11.7 0.1 0.0 16 0.95
HDS-663
1615.9 1651.1 0.2% Cu 35.2 1.1 0.1 27 0.56
201.2 211.8 2% ZnEq 10.7 5.5 3.9 270 0.13
HDS-668 221.0 233.2 2% ZnEq 12.2 5.7 3.9 129 0.03
699.5 713.2 2% ZnEq 13.7 1.3 4.2 134 0.06
1343.6 1353.6 2% ZnEq 10.1 3.8 3.5 61 0.47
1384.7 1395.4 0.2% Cu 10.7 2.7 2.9 38 1.03
1405.9 1415.2 0.2% Cu 9.3 0.5 0.7 11 0.26
1421.3 1452.1 0.2% Cu 30.8 0.7 0.8 22 0.59
HDS-691 1463.6 1509.7 0.2% Cu 46.0 0.4 0.5 21 0.43
1540.6 1549.3 0.2% Cu 8.7 0.3 0.9 51 0.61
1563.9 1581.3 0.2% Cu 17.4 0.2 0.2 23 0.55
1662.7 1677.9 0.2% Cu 15.2 2.8 1.1 155 1.19
1683.4 1692.6 2% ZnEq 9.1 1.5 0.3 45 0.13
1732.0 1735.2 2% ZnEq 3.2 6.2 0.3 107 0.18
1994.6 1997.4 2% ZnEq 2.7 1.7 0.3 54 0.08
HDS-711 150.6 153.9 2% ZnEq 3.4 1.9 1.0 244 0.34
372.5 377.0 2% ZnEq 4.6 0.0 1.1 87 0.04
410.6 415.1 2% ZnEq 4.6 0.0 1.2 65 0.02
HDS-714
627.9 632.5 2% ZnEq 4.6 2.1 3.6 111 0.06
682.8 688.8 2% ZnEq 6.1 3.0 3.9 109 0.09
119.5 127.4 2% ZnEq 7.9 0.0 1.7 53 0.05
167.3 196.0 2% ZnEq 28.7 3.7 0.5 176 0.23
Including
172.8 180.8 2% ZnEq 8.0 7.1 1.2 218 0.71
300.1 342.3 2% ZnEq 42.2 2.1 1.8 94 0.09
Including
HDS-715
333.3 342.3 2% ZnEq 9.0 6.8 0.7 42 0.08
563.9 575.3 2% ZnEq 11.4 3.7 3.6 188 0.16
Including
565.4 571.5 2% ZnEq 6.1 4.5 5.4 290 0.19
591.3 598.9 2% ZnEq 7.6 4.7 2.1 92 0.14
780.3 787.9 2% ZnEq 7.6 0.2 0.1 96 0.01
1065.3 1072.4 0.2% Cu 7.2 3.5 2.7 22 0.21
1306.1 1318.3 0.2% Cu 12.2 1.8 1.8 63 0.82
1444.1 1466.7 0.2% Cu 22.6 1.7 1.7 46 1.38
Including
HDS-717
1456.6 1466.7 0.2% Cu 10.1 0.5 1.0 78 2.57
1517.9 1522.2 2% ZnEq 4.3 3.0 1.8 49 0.03
1718.6 1727.0 0.2% Cu 8.4 1.0 0.1 39 1.99
1754.1 1763.3 2% ZnEq 9.1 1.4 0.5 42 0.13
HDS-763 1429.8 1439.6 2% ZnEq 9.8 2.3 0.1 3 0.02
HDS-797 No significant intersection
Annexure 2: Material Assumptions for the Production Target and Forecast Financial Information
Criteria Commentary
Mineral Resource • The Production Target is based on 20% Measured, 62% Indicated, 14% Inferred
estimate for Mineral Resources and 4% Exploration Target. The Mineral Resources were
conversion to Ore declared as part of South32’s Annual declaration of resources and reserves in
Reserves the Annual Report published on 3 September 2021 and is available to view on
www.south32.net. The details of the Exploration Target are included in this
announcement (Annexure 1).
Study status • A pre-feasibility study has been completed for the Taylor Deposit in compliance
with the AACE International Class 4 estimate standard.
• A technically achievable and economically viable mine plan has been determined
by the study team. Material Modifying Factors have been considered and are
included in this section of the report.
Cut-off parameters • Taylor is a polymetallic deposit which uses an equivalent NSR value as a grade
descriptor. NSR considers the remaining gross value of the in-situ revenue
generating elements once processing recoveries, royalties, concentrate
transport, refining costs and other deductions have been considered.
Criteria Commentary
• The elements of economic interest used for cut-off determination include silver
(Ag), lead (Pb) and zinc (Zn).
• The cut-off strategy employed at Taylor is to optimise the NPV of the operation.
• An NSR cut-off grade of US$90/tonne was used in the development of mineable
stope shapes.
Mining factors or • The mining method applied is longhole open stoping with paste backfill. This is
assumptions the preferred mining method based on a combination of productivity, cost,
resource recovery and risk of surface subsidence.
• Geotechnical recommendations based on deposit geology have been used to
develop the stope shape dimensions.
• The mining dilution is applied based on rock dilution or fill dilution dependent
on the location of the stope being mined. Dilution factors are applied on a stope
by stope basis using incremental dilution widths applied to the stope geometry.
• The mining recovery factor is 95% and is applied to all ore tonnes.
• Inferred Mineral Resources are incorporated into the stope designs and
contribute to the overall weighted grades and NSR of the stope. Inferred Mineral
Resources contribute approximately 14% and the Exploration Target contributes
4% of the total planned tonnes. A risk assessment was completed considering
Inferred Mineral Resources and the Exploration Target as waste to ensure that
the Production Target and forecast financial information as stated can be
achieved. Accordingly, the Company believes it has a reasonable basis for
reporting a Production Target including those Inferred Mineral Resources and
the Exploration Target.
• Primary access to the orebody will be through a main shaft and a ventilation
shaft. Ore passes, haulage levels and ventilation raises will be established to
move material internally within the mine and provide ventilation and cooling.
Paste backfill will be produced in a surface backfill plant and distributed
underground via a backfill reticulation system.
• The proposed mining method with modifying factors applied supports a single-
stage ramp-up to the preferred development scenario of up to 4.3Mt per
annum.
Metallurgical factors • The Taylor processing plant will consist of well-established processing
or assumptions techniques. Primary crushing will be conducted underground, and crushed ore
will be hoisted to the surface. Grinding will be conducted by a single-stage AG
mill to a size suitable for flotation. Sequential flotation will be followed by
pressure filtration for concentrates and tailings.
• Metallurgical recovery is found to vary by geological domain and recovery ranges
are applied based on geologic formation. Average process recoveries are: 90%
for zinc in zinc concentrate; 91% for lead in lead concentrate and 81% for silver
in lead concentrate.
• Lead is found to occur primarily as galena and zinc is found to occur primarily as
sphalerite with small amounts of non-sulphide zinc occurring in the geological
domains close to surface. Galena and sphalerite are coarse grained and easily
liberated for effective recovery by sequential flotation.
• Manganese occurs in relatively high concentrations in gangue and can occur as
an inclusion of sphalerite especially in the higher geological domains. This can
cause manganese in zinc concentrate to exceed penalty limits for most smelters.
No other deleterious elements are expected to exceed penalty limits for lead or
zinc concentrates.
• Metallurgical test work has been conducted using samples covering the ore body
vertically and horizontally. All metallurgical test work and the process design
have been reviewed by independent consultants.
Environmental • The project consists of patented claims surrounded by the Coronado National
factors or Forest and unpatented claims located within the surrounding Coronado National
assumptions Forest and managed by the United Sates Forest Service.
• A permitting schedule has been developed for obtaining critical state and federal
approvals.
Criteria Commentary
• Waste rock generated from surface and underground excavations is delineated
into potentially acid generating (PAG) or non-acid generating (NAG) rock. All
PAG material will report to a lined facility as will most of the NAG material,
except for a limited amount that will be used for construction material.
• The tailings storage facilities have been designed in accordance with South32’s
Dam Management Standard and consistent with the International Council on
Mining and Metals (ICMM) Tailings Governance Framework, in addition to the
Australian National Committee on Large Dams (ANCOLD) guidelines.
• Tailings from processing will be filtered and stored in purpose-built, lined,
surface storage facilities or returned underground in the form of paste backfill.
An existing tailings storage facility on patented claims will be used to store
tailings from early operations.
Infrastructure • Current site activity is supported by and consists of office buildings, core
processing facilities, an existing tailings storage facility as part of the voluntary
remediation program, a water treatment plant, ponds, road networks and
laydown yards.
• Planned infrastructure will be installed to support future operations and will
consist of:
o Dual shafts
o Ventilation and refrigeration systems
o Process comminution, flotation and concentrate loadout
o Tailings filtration plant and tailings storage facilities
o Paste backfill plant
o Dewatering wells, another water treatment plant and pipelines
o Surface shops, fuel bays, wash bays and office buildings
o Powerlines and substations
o Surface stockpile bins
o Underground maintenance shops and ore/waste storage
• A site layout plan and construction schedule support the above listed
infrastructure.
Costs • The capital cost estimate is supported by sufficient engineering scope and
definition for preparation of a AACE International Class 4 estimate.
• The operating cost estimate was developed in accordance with industry
standards and South32 project requirements.
o Mining costs were calculated primarily from first principles and
substantiated by detailed labour rate calculations, vendor-provided
equipment operating costs and budgetary quotations for materials and
consumables.
o Processing costs account for plant consumables/reagents, labour, power
and maintenance materials and tailings storage facility costs.
o General and administrative costs are based on current operating structures
and optimised based on industry benchmarks and fit-for-purpose sizing.
Permitting and environmental estimates are based on current permitting
timelines.
• Commodity price forecasts for silver, lead and zinc and foreign exchange are
supplied by South32 Marketing. Price assumptions reflect South32’s view on
demand, supply, volume forecasts and competitor analysis. Price protocols will
not be detailed as the information is commercially sensitive.
• Transportation charges have been estimated using information on trucking
costs, rail costs, export locations, transload capabilities and transit time
associated with moving concentrate from site to port to market.
• Treatment and Refining Charges used for the valuation are supplied by South32
Marketing and reflect South32’s view on demand, supply, volume forecasts and
competitor analysis.
• Applicable royalties and property fees have been applied using on the current
US federal and state rates.
Revenue factors • The life of operation plan derived from the pre-feasibility study provides the
mining and processing physicals such as volume, tonnes and grades to support
the valuation.
• Revenue is calculated by applying forecast metal prices and foreign exchange
rates to the scheduled payable metal. Metal payabilities are based on contracted
payability terms, typical for the lead and zinc concentrate markets.
Market assessment • Internal price protocols reflect South32’s view on demand, supply, and stock
situations including customer analysis, competitor analysis and identification of
major market windows and volume forecasts.
Economic • Economic inputs are described in the cost, revenue and metallurgical factors
commentary.
• Sensitivity analyses have been completed on metal prices, metallurgical
recoveries, mine operating costs, growth capital costs and use of Inferred
Mineral Resources and the Exploration Target to understand the value drivers
and impact on the valuation.
• The pre-feasibility study evaluated alternate cases to assess the impact of longer
than expected permitting timelines and associated capital spend profiles.
Social • South32 maintains relationships with stakeholders in its host communities
through structured and meaningful engagement activities including: community
forums, industry involvement, employee participation, local procurement and
local employment.
• A Community Management Plan has been developed in accordance with the
South32 Community Standard and includes baseline studies, community
surveys, risk assessments, stakeholder identification, engagement plans, cultural
heritage, community investment plans, closure and rehabilitation.
Other • Hermosa has developed a comprehensive risk register and risk management
system to address foreseeable risks that could impact the project and future
operations.
• No material naturally occurring risks have been identified and the project is not
subject to any material legal agreements or marketing arrangements.
Date: 17-01-2022 08:50:00
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