A spike in inflation triggered by US tariffs and the war involving Iran has seen the capital expenditure bill for mining giant South32’s Taylor lead-zinc-silver project in the US balloon by $1.1bn.
The mine is a centrepiece of South32’s growth strategy.
The group said on Thursday that the mine’s expected growth capex has been revised to about $3.3bn from an initial $2.16bn, due to materially higher inflation, industry-wide increases in key input costs such as steel, piping, concrete and electrical, and US tariffs.
South32 CEO Graham Kerr said in a media briefing that about $500m of the cost increase was caused by higher-than-expected inflation.
“Since we sanctioned Taylor in 2024, there have been major inflationary shocks and supply chain challenges, from the war in Ukraine to US tariffs and recent Middle East conflicts. These external pressures have recently intensified.
“Compared to our estimated pricing in our final investment approval, installed steel prices are up by more than two and a half times. Installed piping prices are up by more than two times, and concrete prices are up by around two times.”
While the war in Iran has disrupted oil markets, sending prices to their highest levels since the Ukraine war, US tariffs continue to drive up the prices of imported inputs, further pressuring costs.
“When we’ve talked about tariff exposure, I’ve always been more worried about what it means for inflation in the US. Things like concrete, steel and electrical items, that’s where we really see significant spikes [in prices],” said Kerr.
As inflation looms large, the construction of Taylor’s shaft has been set back significantly in recent months by underperforming contractors, resulting in substantial delays.
The mine is expected to take another year to reach first production after the initial estimate of the second half of 2028, with nameplate capacity expected in the 2031 financial year.
“Contractor performance has been more challenging than we expected in the past nine months,” said Kerr.
“The productivity of what we’re getting from contractors is not what we expected when we signed contracts [for Taylor’s shaft].”
The Taylor project is one of two assets within South32’s Hermosa operation, a cornerstone of its critical mineral growth strategy.
Hermosa is the only advanced mine development project in the US that could produce two minerals, zinc and manganese, which are recognised as critical minerals by Washington.
Kerr assured investors that “while today’s outcome is not the outcome we anticipated, Taylor is expected to deliver returns for decades to come”.
The mine is expected to deliver steady-state earnings before interest, tax, depreciation and amortisation of $650m per annum, which could rise to about $800m per annum if current spot prices for zinc, lead and silver hold.
Across the mining industry, companies are bracing for surging fuel costs and a wave of inflation this year.
The Minerals Council South Africa estimated miners paid about 50% more in diesel costs in April than they did in March as Brent crude continues to trade above $100 a barrel.
The fallout of rising energy prices, a core driver of inflation, could spread across key inputs, while the impact on food prices is expected to see unions demand big wage increases.
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