CALGARY — A new BMO Capital Markets report suggests surging oil prices due to the Middle East conflict could significantly raise mining costs in the near future.Analyzing historical cost trends using Wood Mackenzie data, the report found mining expenses tend to rise sharply alongside crude oil prices, though the degree of exposure varies by commodity.Mining.com reports iron ore operations appear to be the most sensitive, with costs increasing about 4.2% for every 10% rise in oil prices, compared with roughly 3.5% for copper and about 2% for gold..If crude were to average around $100 per barrel — roughly 47% above the 2025 average — mining costs could climb about 20% for iron ore, 16% for copper, and 9% for gold.Analysts said traditional “bottom-up” cost breakdowns often underestimate the impact because they focus mainly on direct fuel consumption. Diesel accounts for only about 5% of copper mine operating costs today, down from roughly 8% two decades ago, but higher energy prices are eventually seen throughout the broader supply chain.The BMO analysis highlights how energy shocks can reshape mining economics..Operating expenses are not only pushed up by sustained increases in oil prices but can also shift cost curves, possibly altering which mines can remain competitive if high fuel prices persist.“Mining companies are affected by rising energy costs,” BullionVault researcher Adrian Ash told Barron’s on Thursday.“A huge part of any mining endeavour is the cost of energy, so oil and gas surges will always hurt mining stocks.”This coincides with a separate analysis from S&P Global published January 30, which also suggested energy prices would remain a key driver of mining costs this year.In that industry outlook, S&P Global Market Intelligence projected fuel expenses would rise about 6.25% in 2026, increasing mining, processing, and transportation costs across the sector and potentially squeezing margins for higher-cost operations.Supply-chain risks tied to the US-Israel-Iran war also add another layer of uncertainty, as one-fifth of global exports of ammonia — a key component for ammonium nitrate used in mining explosives — passes through the Strait of Hormuz.According to the International Energy Agency (IEA), the current conflict has created the “largest supply disruption” in history, even as dozens of IEA member countries recently agreed to release 400 million barrels of oil from strategic reserves to help bring down crude prices..Canada could face similar cost pressures as fuel prices and operating costs rise, particularly in remote mining regions such as the Detour Lake Mine in Northern Ontario, which is one of Canada’s largest open-pit gold mines.Like many northern operations, it relies on heavy diesel usage for drilling, blasting, and hauling over long distances, which makes operations like Detour Lake more susceptible to oil price increases in the global market, as industry studies suggest energy can account for 15% to 30% of total operating costs at many mines.The surge in costs comes as Ottawa continues to push production of critical minerals under the Canadian Critical Minerals Strategy, which was launched in 2022.Since then, domestic output of several critical minerals — including graphite, lithium, and uranium — has increased by roughly 10%, and exploration spending reached approximately $2.1 billion in 2024.Currently, Ottawa says dozens of new projects are moving through the review process, with nearly 140 mining projects planned or proposed in the country between now and 2034, representing a combined value of $117.1 billion.Roughly half of those projects will process or extract critical minerals, with potential investment worth $72.4 billion as Canada seeks to position itself as a major mineral supplier to the global market going forward.
