South32 takes $1.3 billion hit against Hermosa; Q4 output steady

(Reuters) -Australian diversified miner South32 on Monday said it will take an about $1.3 billion one-off charge in fiscal 2023 against its Hermosa project in Arizona, even as the company restored output at most of its operations in the fourth quarter.

Mining at South32’s Taylor sulphide deposit in Hermosa has been impacted by operational hazards as well as restrictions due to the COVID-19 pandemic.

Inflationary pressures pushed up prices of steel, cement and electrical components, forcing the miner to forecast higher pre-production expenditure estimates for the project, South32, which was spun off from the BHP Group in 2015, said.

“We are disappointed by the delays resulting from the impact of COVID, the significant dewatering requirements and current inflationary market conditions,” said Chief Executive Officer Graham Kerr.

“The feasibility study for Taylor remains on track and will benefit from 41% increase in measured mineral resource announced today,” Kerr said.

Shares fell as much as 2.6% to A$3.72 as of 0344 GMT to hit their lowest in about two weeks.

“The impairment charge is obviously a big setback for the business, which is why the stock is under pressure,” said Josh Gilbert, market analyst at eToro AUS Capital.

“Investors will soon begin to lose patience with South32, with shares marginally gaining over the last five years and well underperforming the broader materials sector,” added Josh.

South 32 said output of manganese ore, used to make steel, fell to 1,455 thousand wet metric tons (kwmt) during the quarter, compared to 1,469 kwmt a year ago.

For the full year, manganese ore output jumped 4% to 5,653 kwmt.

Alumina production declined 4% in the 2023 financial year due to temporary outages in the June quarter.

Output of metallurgical coal, the miner’s biggest revenue-generating commodity, jumped 9% to 1,504 thousand tonnes (kt) for the June quarter, while annual output slipped 4% to 5,497 kt.