An UnKnown Pinch Point In Global Semi-Conductor Sector Just Got Slammed

Could the global semi-conductor sector—whose stocks are now worth TTTRillions, and EVERYBODY owns them—be vulnerable to an obscure pinch-point in the supply chain—in rural North Carolina in the southeast US?

Yes, right where Hurricane Helene went through. Flooding, mayhem…and the only pure quartz supplier to semi-conductor companies?

Generally these potentially high impact events turn out to be “nothing-burgers”. But investors—and the rest of the world—will find out soon.

Might be worth buying some inverse semiconductor ETFs like SOXS?

HERE IS THE STORY:

Hurricane Helene hit parts of North Carolina very hard on the weekend. That is not good for people living in remote Appalachian Mountain areas of North Carolina. They are without power, without roads, essentially cut off from the world in some cases.

The eye of the hurricane passed right over a small town called Spruce Pine. It has caused widespread flooding in that area.

Source: X.com

That town appears to have been decimated.

Source: X.com

What makes this disaster worth watching as an investor is that just outside of Spruce Pine is a mine called the Sibelco North America School House Mine.

The mine is owned by a private Belgium company called Sibelco. It is just a few miles NE of Spruce Pine.

Source: Google Maps

This mine isn’t just any mine. It produces an extremely high-purity quartz (HPQ) used to make silicon wafers for semiconductor manufacturing.

And while it may seem impossible to believe, this mine accounts for 70% of the HPQ that is used by the semi-conductor industry.

Of course, that seems crazy. To think that one mine produces 70% of anything important is just wild.

I actually read an article on this mine a few months ago (here). I remember at the time thinking that some day this could matter, but not today.

Well, maybe today.

As the above linked article states a “Wharton professor who studies AI, innovation, and start-ups dramatically claims that “the modern economy rests on a single road in Spruce Pine, North Carolina.”

Is it really that dire or is that hyperbole? It’s a good question and one I’d love a straight answer to but haven’t found yet. Believe me, I’ve looked. 

Sibelco is very secretive about this mine. They don’t publish how much it produces. They don’t talk about how the HPQ is shipped. They are a private company so there is no requirement that they disclose events. They put out a very short and un-detailed press release last night:

Source: Sibelco

The truth is, we don’t really know how badly the mine is impacted by the hurricane and flooding. What we can say is its likely not in great shape. Here are pictures taken of the mine site.

Source: X.com

From what I can tell on Google Maps, the mine is an open pit mine. Which means its a pit in the ground. Which means its almost certainly holds a lot of water right now.

There are rumors today that Sibelco sent out force majeure notices.

Source: X.com

The second issue is transportation. It seems like rail lines in the area have been hit pretty bad.

Source: Reuters 

This account, which appears to be Daniel Gurley, Deputy Chief of Staff for North Carolina House of Representatives, says that it could be 6 months to get the track fixed.

Source: X.com

And its not at all clear to me whether this quartz can be exchanged with another quartz easily. And what it would take to create the final high-purity silicon from another source.

While I’m no mining expert I’ve been in the game long enough to know that just because there is another quartz deposit somewhere, that doesn’t mean its going to be a mine any time soon. 

Yesterday I read a lot of people on X that downplayed the impact, saying there is plenty of quartz in the ground.  They were throwing out names of what are essentially nanocap Canadian venture plays. While they may produce alternatives in the long-run, these sort of players aren’t going to change what’s happening in the next few months.

It takes years to bring on mines. It takes months to even tweak a processing facility to use a new composition of ore.  I have my doubts that substitution is easy.

The truth is, this one mine produced 70% of the worlds supply of HPQ for a reason.  It’s probably because the alternatives were expensive.

Meanwhile if the mine has sustained significant damage, we need to hear from the company what it will take to get it back online. Remember, it needs to be a safe workplace, it has to not be leaching dangerous chemicals or tailings into the ground: there are lots of unanswered questions so far.

IF this mine is out for some time, I don’t really see an alternative supply showing up overnight.  Which leaves us with inventories.

There are inventories. It is something around 3-months for some wafer producers.

Source: X.com

The fellow who tweeted this out concluded that these inventories were ample, that 3 months is a long time and that the mine will get up and running and there is nothing to be concerned with.

This is probably true. Most of these “black swans” really do turn out to be nothing-burgers.

Yet the comments I see that this is no big deal that are mostly based on the premise that 99% of the time these sorts of things are no big deal.  On the flip side, I see pictures of rail lines washed out, comments that it will take 6 months to get the trains running, I see a mine that looks flooded, a company that is telling customers force majeure and isn’t saying anything about the state of the mine to the rest of us.

With those points in mind, I think its prudent to hedge a bit here. Just in case.

You can buy the inverse NASDAQ Proshares Short QQQ (PSQ – NASDAQ), you can buy a 2x inverse semiconductor ETF, ProShares UltraShort Semiconductors ETF (SSG – NASDAQ) – unfortunately there is no 1x short ETF on the semiconductor SOXX index. You can also go right after the king, buying the 1.5x short Nvidia ETF (NVDS – NASDAQ). For those of us that short, you can just short the iShares Semiconductor ETF (SOXX – NASDAQ).

I fully expect I will lose a few dollars on these trades if this is nothing (which it probably is) but it will be well worth it on the off-chance it isn’t.