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South32 has slashed the value of a key mine it is developing in the United States by $US1.3 billion ($1.93 billion) after the project was hit by a blowout in construction costs and delays, which sparked a slump in the mining giant’s share price.
The Perth-based diversified miner paid $US1.44 billion to buy Arizona Mining in 2018, giving it ownership of a zinc, lead and silver mine in Arizona called the Hermosa project, with the Taylor zinc, lead and silver deposit and the Clark manganese deposit.
South32 floated on the ASX in 2015 with a diverse set of assets considered non-core by BHP.Credit: Fairfax Media
On Monday, South32, a former spin-off from global giant BHP, cut its carrying value of Taylor by $US1.3 billion to $US482 million ($716 million).
South32 chief executive officer Graham Kerr said he was disappointed by the delays that were attributed to the pandemic, unexpected amounts of water to remove from the mine site that has cost $US365 million so far, and an increasing cost of construction materials which include steel, cement and electrical components.
“The Hermosa project has the potential to sustainably produce commodities critical for a low-carbon future, from multiple development options, for decades to come,” Kerr said.
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The value of Hermosa, with Clark unchanged, is now $US1 billion ($1.49 billion), much lower than the purchase price.
South32 shares fell 2.6 per cent to $3.72 in a weak day for mining stocks, as shares in mining giants Rio Tinto and BHP also dipped lower.
The setback for the critical minerals project is the latest sign of the difficulty of delivering resource projects on budget, after Woodside last week delayed production from its West African oil project due to problems on a production vessel.