South32’s Growing Silver Engine Emerges as a Strategic Earnings Driver

Key Moments

Silver Quietly Becomes Central to South32’s Value Story

South32 (ASX: S32) is widely viewed as a core participant in the ASX resources sector, primarily associated with aluminium and the base metal assets separated from BHP in 2015. Yet the company’s exposure to silver, through the Cannington operation and the development-stage Hermosa project, is emerging as a key component of its future profile.

Macquarie’s latest analysis indicates that Hermosa carries the highest net present value (NPV) of any asset in the South32 portfolio. On a commodity basis, silver-lead-zinc now accounts for 40% of South32’s NPV, equal to the combined contribution from aluminium and alumina.

Currently, silver plays a relatively modest role in the company’s earnings mix. In 2024, the Cannington operation delivered 12.7 million ounces of silver, together with 92,400 tonnes of lead and 44,500 tonnes of zinc.

For the latest half-year 2025 period, South32 reported Group EBITDA of US$1.01 billion. The Alumina business contributed US$543 million, or 54% of Group EBITDA, while Aluminium contributed US$136 million, or 13.5%.

As silver prices move higher and Hermosa advances toward production, the balance of earnings could shift. Over time, silver-lead-zinc has the potential to rival – or exceed – aluminium as a core earnings contributor.

Hermosa: From Write-Down to Long-Life Growth Asset

South32 acquired the Hermosa project in Arizona through its 2018 takeover of Arizona Mining, purchasing the remaining 83% of the company for approximately US$1.3 billion in cash.

Hermosa contains several deposits. The Taylor zinc-lead-silver deposit is the first scheduled for development, while the Clark deposit is aimed at supplying battery-grade manganese.

The project has already faced significant challenges. In July 2023, Hermosa was subject to a US$1.3 billion write-down driven by higher development costs, the effects of the pandemic, and substantial water-logging issues. Despite these setbacks, South32’s Board in February 2024 approved development of the Taylor project, with planned capital expenditure of US$2.2 billion. First production is targeted for the first half of 2027, and the initial mine life is estimated at 28 years.

Hermosa Production Outlook

Macquarie expects a step-up in Hermosa’s production profile as the Taylor deposit ramps up. The forecasts are as follows:

Macquarie’s January 2026 assumptions highlight a rapid build-up in silver, lead, and zinc volumes from 2027 through 2030. At a silver price of US$90 per ounce, simple revenue calculations suggest Hermosa could become a substantial cash generator for South32.

Cannington: Mature But Still Material

The Cannington mine currently represents less than 5% of South32’s NPV. The operation is supported by approximately 10 million tonnes of ore reserves, equating to about six years of remaining production based on current estimates. The company is pursuing various options to extend the mine life.

Despite its relatively modest share of portfolio NPV and approaching maturity, Cannington remains an important near to medium-term base metals producer.

Cannington Production Forecasts

Macquarie’s January 2026 forecasts for Cannington outline a stable, albeit gradually declining, profile for silver and associated base metals:

These projections underscore Cannington’s role as a continuing source of silver, lead, and zinc, even as Hermosa is expected to become increasingly important later in the decade.

Rising Silver Price Reframes Earnings Potential

South32 is still several years away from achieving peak silver output, with Hermosa not expected to enter production until the first half of 2027. Nonetheless, the sharp move higher in silver prices is already sharpening investor focus on the earnings impact from both Cannington and Hermosa.

UBS commented on the silver market backdrop on Thursday, stating that “silver is expected to be strongly supported by fundamentals and speculative flows, which sees us upgrade prices up to around 40%… forecasting an average of US$79/64/oz for 2026-27.”

According to UBS, the uplift in silver prices has a meaningful impact on South32’s financials: “As a result, South32’s Cannington mine EBITDA lifts by up to 38%, Group underlying EBITDA by up to 7% and EPS by +14/10/5% in 2026/27/28e.”

The brokerage also highlighted a potential strategic dimension linked to leadership changes: “The upcoming transition of the CEO role, with Matthew Daley set to start 2 February 2026, has fuelled speculation around portfolio simplification including a potential part or full sell-down of Cannington, given record high silver prices.”

UBS did not address Hermosa in its note.

Portfolio at a Strategic Crossroads

South32 finds itself at a pivotal point. Aluminium prices are moving toward near four-year highs, supporting its traditional earnings pillars in alumina and aluminium, while silver is becoming a more prominent component of the company’s valuation.

With Hermosa positioned as a long-life growth asset and Cannington providing near-term silver exposure, the company’s portfolio is increasingly leveraged to the silver price. How South32 navigates capital allocation, project delivery, and potential portfolio reshaping – particularly around Cannington – will be closely watched by investors evaluating the company’s evolving mix of aluminium and silver-linked earnings.