A Global Economy Caught in the Gates of Hell

Each day the conflict in the Middle East drags on, a new supply crisis pops up. The global economy is suffocating under the Strait of Hormuz closure.

Oil and gas supply was the obvious consequence.

However, refining O&G yields a vast array of secondary products critical to everything from manufacturing, mining and food production.

This event points out why the global economy remains addicted to oil and gas. Secondary products are arguably just as important as the energy itself.

Urea and ammonia are two important examples; they’re derived from the separation of natural gas and are critical components for nitrogen fertilisers.

Almost half of all seaborne supply comes from the Middle East, meaning it has to pass through the dreaded Strait.

Prolonged closure will impact food security, as modern industrial-scale cropping cannot function without colossal fertiliser inputs.

Another example: sulphur.

Sulphur is the primary raw material for producing sulphuric acid. Around HALF of all seaborne sulphur funnels through the strait.

It’s another critical byproduct of oil and gas refining, which means massive quantities of sulphur are produced in the Middle East (Saudi Arabia, UAE, Qatar, Kuwait, and Iran). And again, it must pass through this 33-kilometre-wide channel to reach global industrial hubs.

So, why does sulphur matter?

Sulfuric acid is a leaching agent, meaning it dissolves valuable metals (copper, nickel, zinc, uranium) from rock, a process critical to modern mining and processing.

The acid is used to dissolve certain minerals (usually oxides) in a process called ‘In Situ Leaching.’

Essentially, it dissolves the metal from its host rock.

This is how the world’s largest producing region, Kazakhstan, gets its uranium.

But global shortages of sulphuric acid have already disrupted output at major mines in recent years. But this could look far worse under a prolonged closure of the Hormuz Strait.

Stuck in the Gates of Hell

No doubt, the consequences could go beyond disrupted oil and gas flows.

Some major mining operations may be forced to shut their doors if their supply of sulphur is disrupted.

But as in any situation, there are always winners and losers.

So, let’s stick with the uranium example to show you what I mean…

If mines go offline due to prolonged sulphur shortages, metal prices will inevitably rise as global production falls.

As I mentioned, Kazakhstan is the world’s largest producer of uranium, accounting for over 40% of global production.

But it NEEDS sulphur to make that happen.

That means an opportunity could emerge among the operators that don’t need sulphur (as much), like uranium mines in Canada’s Athabasca Basin.

These operations tend to use traditional underground and open-pit extraction. Although they’re not entirely immune, sulphuric acid is still required for milling and processing.

Broadly, though, they’re going to be less impacted.

But an even better strategy might be to look at mining firms that have become entirely ‘self-sufficient.’ In other words, they produce their own sulphuric acid.

How can they do that?

Well, some deposits are naturally high in a mineral called pyrite, which contains sulphide, and can be converted into sulphuric acid.

That means some operators
have already closed the loop.

Separating and treating their ‘waste’ rock, which is high in pyrite, and then using it as their primary source of sulphuric acid.

These miners stand to benefit the most IF the Strait remains closed.

And those left standing against the back-breaking shortages of sulphuric acid will be able to benefit from structurally higher metal prices.

And these companies could be the big winners.

If demand remains constant, mine closures will lead to higher metal prices.

And that means more cash flow (and profits) for those who can stay in business.

If you’d like to get the name of one mining stock closing the loop at its operation, you can do so here.

Until next time.