A junior West Australian iron ore miner was forced to scale back non-essential activities to keep its operations running after coming within days of running out of fuel.
Fenix Resources, which operates three mines in the state’s Mid West, hauls its iron ore hundreds of kilometres on road trains to the port of Geraldton.
It owns and operates its entire supply chain, meaning it has its own mining, logistics and port services business.
But Fenix executive chairman John Welborn said that made the company very dependent on a regular supply of diesel fuel, and the war in the Middle East is prompting him to rethink that strategy.
Fenix executive chairman John Welborn says a lack of fuel forced them to scale back non-essential operations. (ABC Goldfields-Esperance: Jarrod Lucas)
“This has taught us the lesson about how we have always assumed that fuel will be available,” he told 102.5 ABC Perth.
“We have structured our whole business around it, so the current supply shock has made us look at that strategy differently.”
Consumer pain within ‘weeks’ if WA diesel supplies aren’t resolved
The ASX-listed company normally has between five and 10 days’ worth of fuel at any one time, but he said that had dipped to one or two days’ supply on occasion since the war began.
The crisis led Fenix to make an announcement last week that it was scaling back non-essential activity to maintain ore supply and its haulage operations, “due to a lack of fuel supply availability from Fenix’s contracted diesel suppliers”.
Not facing immediate catastrophe
Premier Roger Cook has given fuel distributors until today to provide the government with information on how they will prioritise supplies to the regions, or he will compel them to do so under emergency powers.
WA Premier Roger Cook says he wants to ease the pressure on businesses and consumers from fuel costs. (ABC News: Courtney Withers)
Fenix relies on its fuel suppliers to honour their contracted supply.
“Our suppliers have been very transparent with us,” Mr Welborn said.
“Recently they said we’ve delivered the fuel we can and we won’t know whether we get more fuel for a few days, and so we wait and ring them on that day and find out when the next delivery will be.
Some miners have been forced to make adjustments to cover rising fuel costs. (ABC News: Rachel Pupazzoni)
“The outlook remains, as the government is saying, that fuel supply is there, and so the catastrophe of running out of fuel doesn’t immediately look to be the case.”Fuel modelling findings
Despite the disruption, Fenix told the ASX it did not expect changes to its projected iron ore sales for the financial year.
But Mr Welborn said higher prices meant fuel had gone from about 20 per cent of Fenix’s cost base to 30 per cent, pushing down profit margins.
The Association of Mining and Exploration Companies (AMEC) described fuel supplies as a week-to-week proposition for most of the state’s small miners.
AMEC chief executive Warren Pearce said businesses that serviced the resources sector were really struggling to get fuel.
Warren Pearce says small miners are living week-to-week when it comes to fuel supply. (ABC News: Phil Hemingway)
“It’s starting to bite, particularly in regional Australia, particularly in the industries that service the mining and agricultural sectors,” he said.
The Commonwealth’s halving of the fuel excise was “an important step forward”, Mr Pearce said, that could make a big difference.