A prolonged war in the Middle East threatens to raise operating costs and narrow margins across the mining industry, pushing up the price of diesel, logistics and other necessary inputs, warned South32.
In its third quarter report, the dual-listed mining group said it was implementing measures across its operations to mitigate potential supply chain shocks from the Iran war.
It assured investors that the group was not currently experiencing diesel fuel shortages but would continue to closely monitor the situation.
The message comes as tensions between the US and Iran continue to essentially block all shipping through the Strait of Hormuz, disrupting global logistics and casting uncertainty over commodity markets.
US President Donald Trump said on Tuesday that he would extend the two-week ceasefire with Iran while peace talks continue between the two nations, but neither side seems willing to concede to the other’s demands.
Both sides have ramped up their rhetoric in recent days and markets are bracing for an extended conflict, with oil prices still well above $90 (R1,483.40) a barrel.
“The conflict in the Middle East has resulted in higher global freight rates and raw material input prices which, together with generally stronger producer currencies, are expected to result in cost inflation should these external pressures continue across the remainder of the financial year,” said South32.
The Minerals Council South Africa predicts that South African miners will pay about 50% more in fuel costs this month. Their monthly petrol and diesel bill, which normally amounts to R2.9bn, is expected to jump to about R4bn in April.
The country’s open-pit coal, iron ore and platinum group metal operations, where diesel-powered trucks and earth-moving vehicles form a large chunk of miners’ expenses, all face escalating costs.
In South32’s update for the quarter ended March, it has revised down its Australian manganese production guidance by 6% as seasonal weather resulted in higher site water levels.
Flooding was reported at its Cannington and Sierra Gorda mines as well, but both remain on track to meet production guidance, along with all other commodities.
Alumina production was up 1% year on year in the first three quarters thanks to a strong performance in Brazil, while aluminium production was largely unchanged.
Business Day
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