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How to dodge the Iran war MINING
| Miners scramble as fuel, acid prices jump
BY FRÉDÉRIC TOMESCO
S
oaring fuel and chemicals prices triggered by the war in the Middle East are pushing global miners to dig deep for creative solutions. Take the case of Marimaca Copper (TSX: MARI, ASX: MC2), which moved swiftly to protect its $587-million (C$810-million) namesake project in Chile from a volatile sulphuric acid market. After China’s acid shipments to Chile fell to zero in March, Marimaca signed an accord with a large producer in Mejillones, a port about 25 km from the project, to study refurbishing and relocating an acid plant it had already bought at a distressed sale for $2.5 million. CEO Hayden Locke estimates a new acid plant could cost as much as $35 million for the equipment alone—and up to twice as much for a full installation. “We were thinking about this more as business resiliency,” Locke told The Northern Miner last month. “We don’t need it, but it certainly really strengthens our business case.” Soaring prices Fuel, sulphuric acid, petrochemicals and explosives are just some of the cost items essential to mining that have seen their price soar since the United States and Israel began bombing Iran Feb. 28, culminating in a near-total closure of the Strait of Hormuz. Freight costs too have jumped, with the Containerized Freight Index—which reflects the weekly cost of shipping containers from Shanghai to major global ports— gaining about 70% over the period, data compiled by Trading Economics show. Crude oil prices shot up after the airstrikes on Iran ignited fears of broad supply disruptions, with Brent crude briefly reaching about $126 per barrel in late April before retreating to about $101 as press time neared. Diesel prices in key regions have surged 70% to 120% since the conflict began, surpassing spikes seen at the start of the Russia-Ukraine war, BMO Capital Markets said May 13 in a note. Oil at $100 per barrel has triggered diesel cost increases for miners ranging from 3% to 15%, according to BMO. Until the conflict broke out, diesel typically
“We’ve been very consistently hedging around our cost structure.” J. PAUL ROLLINSON CEO, KINROSS GOLD
accounted for between 5% and 15% of global miners’ direct operating costs, mining analyst Helen Amos and her colleagues wrote. Hedge books Kinross Gold (TSX: K; NYSE: KGC) CEO J. Paul Rollinson said three factors shielded the company from the worst of the surprise war and blockade—hedging, a hydro-electric plant in Brazil to curb spending on diesel and a 34 MW solar plant at Tasiast in Mauritania that saves 2 million litres of fuel a year. “We have typically hedged in the year ahead 50% of our oil exposure but we are actually two-thirds hedged in the low $60s for this year,” Rollinson said in an interview at the company’s Toronto office. “We’re in a pretty good spot as it relates to oil price exposure right now.” Most miners don’t run large, long-term, systematic hedge books like Kinross—which acts more like an airline, with tapering hedge coverage dropping to around 40% next year while the company continues to layer in additional hedges further
out to capture attractive forward oil prices. “We’ve been very consistently hedging around our cost structure, not to play the stock market, but strictly for risk mitigation,” the CEO said. “I’m not sure everyone even hedges.” Increased electrification is also part of the strategy at Kinross, Canada’s third-largest gold miner by output. Rollinson says he’s keen to expand an electric vehicle fleet from Tasiast, perhaps to the La Coipa mine and Lobo-Marte project in Chile’s Atacama high desert. “Our energy [there] is sourced primarily from a renewable grid,” he said. “I’d love to be doing more right now, but we’re taking a look, definitely taking a look.” Top input Diesel is the single most important energy input in the global mining industry. Australia, South Africa and Brazil top the global list of importers, according to BMO data. U.S. copper miner FreeportMcMoran (NYSE: FCX), which operates the massive Grasberg
Marines rappel out of an MH-60S Sea Hawk during training aboard the amphibious assault ship USS Tripoli in the Middle East on May 8. US DEPARTMENT OF DEFENSE
copper-gold mine in Indonesia, says diesel costs surged more than 80% in March compared with the January-February average. The diesel price surge translates into a $500-million cost increase on an annualized basis, CFO Maree Robertson said. Sulphuric acid costs more than doubled on the spot market after the war began, according to Freeport CEO Kathleen Quirk. Energy represented about 15% of Freeport’s global direct costs in 2025, with diesel accounting for half of the total. Electric edge As the effects of the war in Iran continue to ripple through the global economy, Aya Gold & Silver (TSX, Nasdaq: AYA) CEO Benoit La Salle is thankful his company’s key assets in Morocco—the Zgounder mine
Gold hunt winners talk strategy | 18
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