All images: South32.
BY REUBEN ADAMS
AS South32 enjoys strong margins for all of its key commodities in 2018, the global miner is making good on promises to invest capital into savvy brownfields and greenfields opportunities.
The June quarter was a good one for South32, which has finished FY18 on a strong note.
In Australia, the miner reported record production from its manganese operations, as the world’s number one producer of the steel ingredient lifted output to take advantage of better prices.
Progressing through a higher grade stope sequence at the world-beating Cannington silver-lead mine in QLD in the quarter saw payable silver, lead and zinc production increase by 37 per cent, 33 per cent, and 45 per cent respectively.
Production at Worsley Alumina jumped 7 per cent in the quarter due to an uplift in calciner availability and a drawdown of hydrate stocks.
And Illawarra metallurgical coal production exceeded the revised FY18 guidance, as the miner hit an annualised mining rate of 6 million tonnes per annum (mtpa) through the month of June.
Still, production was down 40 per cent to 4.2mtpa for FY18 as the troubled Appin Colliery recovered from an extended outage in the first half of the year.
Internationally, South32 began managing South African Coal as standalone business in the June quarter, with associated restructuring costs to be recorded in FY18 accounts.
“We are actively reshaping our portfolio and are now managing South Africa Energy coal as a standalone business, allowing to simplify the Group, lower overhead costs and fundamentally change the way we work,” South32 chief executive Graham Kerr said.
The company invested $US41.3m in exploration programs during FY18, including $US21.3m to expand its exploration and progress 18 early stage greenfields partnerships.
Then there are the big June quarter deals that represent two near-term growth projects to the South32 portfolio – Eagle Downs and Arizona Mining.
Eagle Downs
On 29 May South32 signed a conditional agreement to acquire 50 per cent and operator status in the Eagle Downs metallurgical coal project in the Bowen Basin, QLD.
This included an upfront payment of about $US106m, a deferred payment of $US27m due three years after completion, and a coal price linked production royalty capped at $US80m.
Mr Kerr said the acquisition represented an attractive development option within its growing operational footprint.
“This high-quality metallurgical coal project benefits from prior investment which has the potential to support its accelerated development and deliver significant value to both South32 and [JV partner] Aquila,” he said.
Eagle Downs is a large, high-quality and fully permitted development project about 25km south-east of the town of Moranbah, and immediately adjacent to and down dip of BHP Billiton Mitsubishi Alliance’s Peak Downs mine.
In late 2015 the project was placed under care and maintenance, but not before it benefitted from initial site infrastructure investment, including water supply and high voltage systems, office buildings and water and sediment dams.
Dual 2km drifts were also about 40 per cent complete.
Aquila had previously reported a resource of 1122mt of which 750mt is measured, 139mt is indicated, and 233mt is inferred.
South32 stated that previous work by Aquila indicated that Eagle Downs has the potential to export 4.5mtpa from one longwall over the first 10 years of full production.
Following completion of the acquisition and assumption of operatorship, South32 will kick off final feasibility, which will seek to optimise the mine’s design and development.
Subject to the findings of that study and requisite approvals, South32 in partnership with Aquila plan to construct a multi-seam underground longwall metallurgical coal mine and processing plant with a dedicated rail spur and train loadout facility.
Arizona Mining
Then the big one – on 18 June South32 entered into an agreement to acquire the outstanding 83 per cent of shares in explorer and developer Arizona Mining for a fully funded, all cash offer of $US1.3 billion.
The transaction is subject to a vote of Arizona mining shareholders on 2 August.
Arizona Mining is owner of the Hermosa project in Arizona, which contains the high grade base metals Taylor deposit; the Central zinc, manganese and silver oxide resource; and an extensive, highly prospective land package.
Taylor alone has a reported resource of 101mt grading at 10.4 per cent zinc, and is open at depth and along strike.
Hermosa is close to key infrastructure in an attractive mining jurisdiction, with a Preliminary Economic Assessment completed by Arizona Mining in January 2018 indicating that this low cost, long life project has the potential to deliver a very high Internal Rate of Return.
Mr Kerr said the all-cash offer for Arizona Mining would allow the miner to optimise the design and development of one of the most exciting base metal projects in the industry.
“We have been a major shareholder in Arizona Mining since May 2017 and an active participant in the Hermosa Project with representation on the operations committee and a nominee on the board of directors,” he said.
“Our deep understanding of this high grade resource and surrounding tenement package, and extensive experience at Cannington, makes us the natural owner of this project and ensures we are well positioned to bring it to development, delivering significant value to our shareholders.”
