South32 tapped for US$166M funding for Arizona manganese plant

South32 (LSE: S32; ASX: S32) says its Hermosa project in Arizona has been tapped for a United States government grant of up to US$166 million, part of U.S. energy department plans to invest more than US$3 billion into the domestic battery manufacturing sector. 

Located in the Patagonia Mountains, about 80 km southeast of Tucson, the Hermosa project is targeted to produce two federally designated critical minerals — zinc and manganese — from the Taylor sulphide and Clark oxide deposits, respectively.

“The DOE grant will help advance development of our state-of-the-art, commercial scale battery-grade manganese production facility,” Pat Risner, president of South32, Hermosa said in a release on Friday. “This project has the potential to provide a reliable, lower carbon and cost-effective domestic option for manganese products within the electric vehicle battery supply chain that currently relies entirely on foreign imports.” 

The US$3 billion pot of funding for 25 projects across 14 states, part of the Biden administration’s Investing in America manufacturing agenda announced in early September, comes just over two years after the administration passed the Inflation Reduction Act. That law earmarks about US$280 billion for clean energy incentives intended to fight climate change and speed up adoption of electric vehicles and renewable energy.

Manganese facility

The DOE funding, once negotiated and secured, would provide 30% of the cost of South32’s proposed commercial-scale manganese production facility, the Australian miner said in a release on Friday.

While the facility’s location is yet to be determined, it will be in southern Arizona, South32 added. Construction for the manganese decline to enable bulk sampling through a demonstration plant and further underground exploration are continuing on schedule, with access targeted for the end of 2025.

The funding follows a US$20 million award to the Hermosa project earlier this year from the Pentagon’s Defense Production Act Investment (DPAI) program to help accelerate the domestic production of battery-grade manganese.

South32 says Hermosa could be scaled up as the only fully integrated source of battery-grade manganese (HPMSM) for EV battery chemistries sufficient to supply the emerging North American market. Based on a third-party life cycle assessment, production from its deposit at Hermosa is projected to be the lowest carbon impact project in manganese chemicals in North America.

The U.S. has not mined any manganese since the 1970s, and more than 95% of the current production of battery-grade manganese is currently in China, according to company estimates.

Taylor’s zinc potential 

The Taylor deposit represents the project’s first stage, targeting first production in fiscal 2027, according to its feasibility study, released on Feb. 15. It has the potential to become one of the world’s largest, lowest-cost zinc producers, with a nameplate capacity of 4.3 million tonnes annually and unit costs of US$86 per tonne of ore processed.

The study gives Taylor a post-tax net present value at US$686 million and an internal rate of return of 12% over an initial mine life of 28 years. Direct and indirect capital costs are estimated at US$2.1 billion. 

Taylor hosts probable reserves of 65 million tonnes grading 4.35% zinc, 4.9% lead and 82 grams silver per tonne. 

Following the study’s publication in February, South32 approved US$2.1 billion to fund the construction of key infrastructure for the mine, which had already begun last year. Also last year, Hermosa became the first mining project added to the U.S.’ FAST-41 permitting process designed to promote faster development of clean energy assets.

The infrastructure at the zinc mine would support future potential development of other deposits at the site, including the battery-grade manganese deposit at Clark, which is subject to further study, South32 said. 

Company shares closed at A$3.20 (US$2.18) apiece on Friday in Sydney, valuing the company at A$14.4 billion (US$9.7 billion).