Helene catastrophe might create downstream disaster for tech industry

Deep in the heart of the Blue Ridge Mountains of North Carolina lies the small town of Spruce Pine. This town, which measures just 3.9 square miles, contains the planet’s purest quartz, a vital component for semiconductor production.

The devastation wreaked upon the region from Hurricane Helene has shut-in production from these quartz mines for an indefinite amount of time, which could lead to supply constraints in the near future.

“It’s home to a particularly pure type of quartz,” said Dan North, a senior economist at Allianz Trade North America, in an interview with Seeking Alpha. “It’s used to form the crucibles in which silicon is formed for all kinds of electronics: wafers, chips, solar panels, fiber optic cables, smartphones, everything.”

The Quartz Corporation, headquartered in Norway, and Belgium’s Sibelco, are the two mining operators in Spruce Pine. Collectively, the quartz these two companies produce accounts for 85% of the market share for semiconductors. It’s unknown at this time when production will resume.

Production shut-in

“Operations at our facilities were stopped on September 26th in preparation of the event, and we have no visibility on when they will restart,” said May Kristin Haugen, The Quartz Corporation’s head of communication, in a statement on Tuesday.

By Wednesday, the operator was able to announce that all of its employees were safe and accounted for.

“We have been able to conduct the first visual inspections of our plants, and it would appear that damage is mostly concentrated around ancillary units,” the company said. “It is still too early to assess when TQC will resume operations, as this will also depend on the rebuilding of local infrastructure.”

However, due to the Covid epidemic several years back, it prompted companies along the chain to maintain a surplus of supply.

“As a result, we have established strong levels of feed stock in Norway to supply our purification operations,” Haugen said. “Coupled with safety stocks of finished products and those that exist at different levels throughout the supply chain, we do not anticipate any critical situation for our downstream industries in the short or medium term.”

Seeking Alpha analyst Michael Del Monte reiterated this backlog of inventory.

“Though the devastation from Helene appears to have taken the Spruce Pine mines in North Carolina offline, the sole mine for high-purity quartz crucibles used for melting silicon, the semiconductor industry may not be in as terrible shape as one may expect,” he said.

“As of FY23, Sibelco has nearly €250M in inventories, which are likely spread across international milling and refining operations as well as regional warehouses,” he added. “Apples to apples, I’d be just as concerned with the port strikes occurring as they may have just as big of an impact to the semiconductor industry, if not greater, than the flooding.”

AI and adversaries

Earlier this year, Sibelco announced plans to invest $700M in its Spruce Pine mines to meet the surging global demand for semiconductors due to the AI revolution.

The quartz is crucial for a multitude of companies, including Intel (NASDAQ:INTC), Samsung (OTCPK:SSNLF), Nvidia (NASDAQ:NVDA), Broadcom (AVGO), Qualcomm (QCOM) and Taiwan Semiconductor (NYSE:TSM). There are reports that some of these corporations have excess silicon on hand, but it’s unknown how long these supplies can last.

“I imagine these companies will be silent on this,” North said. “If TSM came out and said we had 30 days of inventory, it would be disastrous for the market.”

However, Taiwan Semiconductor told Seeking Alpha it does have a supply strategy in place in case of events such as this.

“TSMC’s global procurement strategy involves continuously developing multiple solutions and establishing diverse global suppliers,” the company said in a statement. “Through an effective risk management system and close partnerships with suppliers, we currently do not anticipate any significant impact on the company’s operations. We will keep monitoring the situation closely.”

The main CSX (CSX) rail line running in and out of Spruce Pine, which is the primary mode of shipping quartz from the mines, has suffered serious damage.

“The industry is very dominated by these two mines in Spruce Pine,” North added. “How disruptive is this really going to be? Maybe you get these back in a month, not terrible disruption, but say it takes three months, there will be serious disruptions. Not only are the mines flooded, but they are facing infrastructure damage to transportation, communication, and all this has to be repaired. This could create a huge disruption in the global supply of supply.”

There are very few mines, if any, in the world that match the high-quality quartz found in Spruce Pine. The rarity of the quartz was significant enough for North Carolina lawmakers to draft a bill this spring preventing adversarial countries, such as China, Russia, North Korea and Iran, from taking any form of ownership in the mines.

Seeking Alpha’s Ravikash Bakolia contributed to this story.