Australia’s mining sector is facing significant headwinds as soaring diesel prices, driven by the conflict in Iran, push the industry into a bear market. The closure of the Strait of Hormuz has choked off a substantial portion of the world’s energy supply, causing local diesel prices to spike by 75 per cent this year, reaching nearly $3 a litre. Analysts warn that miners with large-scale open-cut operations are particularly vulnerable due to their reliance on diesel-powered trucking fleets and generators. A Bell Potter survey indicated that diesel accounted for up to 15 per cent of operating costs for ASX-listed miners before the conflict began.
The S&P/ASX 200 Materials Index has fallen sharply since the crisis erupted, with investors dumping stocks most exposed to rising fuel costs, particularly gold producers. Brokers are now advising clients to shift investments towards miners with underground operations or those utilising in-situ leach methods, which require less diesel. Bell Potter highlighted Liontown Resources, a lithium miner with its Kathleen Valley underground operation, and Boss Energy, a uranium stock using in-situ recovery, as less exposed to diesel price volatility. Liontown Resources is focused on developing its Kathleen Valley Lithium Project in Western Australia to supply battery-grade lithium. Boss Energy is an Australian uranium company focused on the re-start of its Honeymoon Uranium Project.
Nickel Industries, operating in Indonesia with a subsidised domestic fuel market, and Vulcan Energy, with its carbon-neutral lithium brine project, are also considered relatively insulated from the oil price shock. Macquarie has identified the iron ore industry, particularly direct shipping ore producers, as being significantly affected by higher fuel prices. These producers extract high-grade ore that requires minimal processing before export. Macquarie analysts estimate that Western Australia-based iron ore miners have approximately three to five weeks of diesel supply remaining.
Macquarie also noted that Mineral Resources’ hub in the Pilbara would be significantly affected by higher diesel prices. Conversely, Fortescue could benefit from its decarbonisation efforts, including substituting diesel, potentially saving the company $US3 to $US6 a tonne depending on diesel prices.
