From the Australian outback to the copper belts of the Democratic Republic of Congo (DRC), the global mining industry is facing a double-edged sword of rising costs and supply chain disruptions. As conflict involving Iran intensifies, the “invisible” ingredients of mining—diesel and sulphuric acid—are becoming dangerously scarce.
The Breaking Point: Supply Chains Under Pressure
The ripple effects of the war in the Middle East are no longer theoretical. For mining giants and junior explorers alike, the cost of extracting the world’s most sought-after metals is skyrocketing.
“The supply chain is breaking down,” warned Ivanhoe Mines founder and co-chairperson Robert Friedland during a recent conference in Switzerland. According to Friedland, the industry has only just begun to feel the true impact of the geopolitical instability.
The crisis centers on two vital inputs:
- Diesel: The primary fuel for heavy machinery and haulage.
- Sulphur/Sulphuric Acid: Essential for the SX-EW (solvent extraction and electrowinning) process, which accounts for roughly 17% of the world’s copper supply.
Why Copper and Cobalt are at Risk
The Middle East is a global hub for mining essentials, accounting for 50% of seaborne sulphur and 10% of shipped diesel. With trade routes disrupted, the copper market—already tight due to project delays—is facing a potential production deficit.
The DRC: A Critical Vulnerability
The Democratic Republic of Congo, the world’s second-largest copper producer and top cobalt supplier, is particularly exposed. Unlike other regions, the DRC relies heavily on SX-EW plants that require massive amounts of imported acid.
- Price Surge: Local sulphur prices have doubled, hitting $1,200 to $1,400 per ton.
- Production Cuts: Goldman Sachs estimates that if disruptions persist through June, the DRC could lose 125,000 tons of copper output this year.
Chile and the China Factor
Chile, the world’s top copper producer, faces a different challenge. While domestic giant Codelco produces much of its own acid, the country sources 30% of its supplemental acid from China. With Beijing signaling plans to halt acid exports in May, nearly 200,000 tons of Chilean metal production could be at risk.
Higher Costs: From Open Pits to Refineries
While “Big Mining” companies like Rio Tinto and Freeport-McMoRan have the balance sheets to absorb higher costs for now, smaller operators are being forced to scale back.
- Nickel & Lithium: In Indonesia, nickel producers like Zhejiang Huayou Cobalt have been “caught off guard” by price spikes, warning of potential output cuts.
- Australia: Iron ore producer Fenix Resources has already curtailed non-essential mining in Western Australia due to diesel constraints.
- Rare Earths: Lynas Rare Earths CEO Amanda Lacaze noted that while supply is available for those who can pay, the “challenging” cost environment will hit margins this quarter.
Market Outlook: Copper Prices Near Record Highs
The supply squeeze comes at a time of accelerating demand for critical minerals needed for the energy transition. Copper futures on the London Metal Exchange (LME) are already 40% higher than last year, recently touching record highs above $14,500 a ton.
“Producing copper today is more and more difficult,” says Maximo Pacheco, Chairman of Codelco. “Nobody expected this to happen.”
Key Takeaways for Investors
- Operational Constraints: Diesel is no longer just a cost variable; it is a critical operational constraint in remote regions like the DRC and Ethiopia.
- Inflationary Pressure: Major producers estimate a 5% increase in production costs solely due to diesel disruptions.
- Supply Scarcity: While sulphur is still available “for those who can pay,” the logistical delays are stretching inventories to the breaking point