How to dodge the Iran war

Soaring 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 oxide 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 this 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 $90 on Thursday. 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 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 Freeport-McMoran (NYSE: FCX), which operates the massive Grasberg 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 and the Boumadine polymetallic project – don’t run on diesel fuel. 

“There is some inflation because we have trucks, but it could be a lot worse,” La Salle, whose company is advancing Boumadine toward a projected 2029 start, told The Northern Miner. “Maybe these extra costs are going to represent 1$ an ounce.” 

At Aya, whose Moroccan assets are connected to the national electric grid, energy accounts for about 10% of operating costs. It’s a far cry from the situation that La Salle faced with his previous company – the former West Africa-focused miner Semafo, which he ran until its acquisition by Endeavour Mining (LSE: EDV) in 2020. There, energy’s share of operating costs was closer to one-third.

As a miner of silver, whose price has more than doubled since November, Aya is somewhat insulated from worries over cost spikes.  

That’s also the case for gold miners and developers – such as emerging Canadian producer New Found Gold (TSXV: NFG; NYSE-A: NFGC), which is mining at Hammerdown and advancing the Queensway project in Newfoundland and Labrador. 

“The short answer is, nothing has changed,” CEO Keith Boyle told The Northern Miner.  

“The basic reason is that there is such a healthy margin between the all-in sustaining cost (AISC) and the gold price that the current cost pressure because of increased fuel prices doesn’t really cut into that in a material fashion. It’s not that we’re not watching it, but we have commitments to spend money, and that will continue.” 

Tariff shield 

Queensway, which is advancing toward production in this year’s second half, has an AISC forecast of $1,256 per ounce. At Hammerdown, which poured first gold last year, the AISC is $2,429. Both figures pale in comparison with gold prices of about $4,510 an oz. as press time neared – down from January’s record high of about $5,595. 

Elevated commodity prices are also helping mining companies weather the impact of U.S. tariffs on Canadian steel and aluminum imports. The levies have made U.S.-made drilling and construction equipment more expensive, miners say. 

“We buy a lot of products from the U.S. for construction, and there are some cost pressures on steel that we’re mindful of in our development,” Boyle said. “That’s one area that’s being seriously looked at in terms of options to mitigate.” 

Developer Lithium Americas (TSX, NYSE: LAC) estimated this month that U.S. steel tariffs and the Iran war would add $80 million to $120 million to this year’s construction expense for the Thacker Pass project in Nevada. The company’s total $2.93-billion capex estimate didn’t consider tariffs.  

Yet as long as gold prices remain at or near current levels, many miners “have margins for days. They can absorb any cost increase,” Kevin Murphy, director of metals and mining research at S&P Global energy, said in an interview. 

“Even copper miners will be fine. The commodity that I would be most concerned about is nickel because nickel prices are not tremendous, and one of the countries most impacted is Indonesia, which is pushing through a formula for increasing the price of ore. So, it’s a double hit on processors in Indonesia: you’ve got higher prices for oil and you have to pay more for your ore.” 

Cost warnings 

To be sure, even gold producers have started to sound the alarm over escalating costs. That’s the case of South Africa’s Gold Fields (JSE, NYSE: GFI), which warned this month about the rise in fuel, freight and explosives costs. 

Assuming oil at $100 per barrel, rising input costs will probably add $40 to $50 per oz. across the board, Gold Fields said. 

“We are still confident that we have adequate mitigation plans in place to remain within our guidance range,” chief financial officer Alex Dall told analysts May 7. 

Those measures include “asset optimization and broader optimization issues across the portfolio,” CEO Mike Fraser added without being specific. 

Others, such as Aya, have moved accounts after balking at major price increases. 

“Our European cyanide supplier wanted to push through a huge price increase, and we said no,” La Salle said. “One of their South Korean competitors didn’t increase prices, so we changed suppliers. But let’s be clear: there is inflation in our industry, especially in chemical products.” 

Consumption cutbacks 

Newmont (NYSE: NEM), the world’s biggest gold producer, said it’s shelved some energy-intensive machinery to save on fuel. 

“We have parked a high number of pieces of equipment across our operations to help reduce consumption,” CEO Natascha Viljoen told analysts. “That is certainly the first area we will be focusing on.” 

It’s a similar story at copper producer Ivanhoe Mines (TSX: IVN; US-OTC: IVPAF), which is seeking to cut diesel consumption at its African operations. 

“There are certain levers that we can pull with our current production scenarios that help us to manage our costs,” CEO Marna Cloete told analysts on a conference call May 7. 

“We can, to some degree, change our diesel mix. There are certain things that we can do in terms of only running concentrators when there’s grid power available, for example, not switching them over to generators.” 

Lingering effects 

Those cost-cutting moves are unlikely to be the last in the industry. Even if the Strait of Hormuz were to reopen soon, damaged oil refining facilities and the need to replenish inventories mean that input prices will probably remain elevated for the foreseeable future, analysts say. 

“A turnaround will take quite a while, and you should expect to see disruptions for most of the rest of this year,” Gemma Stanton-Hagan, director of economics and policy at the PwC Canada consulting firm, told The Northern Miner. 

“Even if there is a de-escalation of this conflict starting today, it’s likely going to take a couple of weeks to clear the backlog in the Strait of Hormuz, and oil producers in the Gulf are likely going to take until the end of the year to get those production capacities back. So even in a best-case scenario, you will likely see these disruptions persist until the end of the year.” 

–With files from Henry Lazenby and Colin McClelland