Gold Miners Face a Margin Squeeze as Oil Bites

Gold Miners Face a Margin Squeeze as Oil Bites

Rising energy costs are quietly eroding gold mining margins, and open-pit operators are bearing the brunt of the pain despite gold trading above $5,000.

What to know

• Open-pit gold miners consume significantly more diesel per ounce than underground operations, making them far more exposed to elevated oil prices.

• All-in sustaining costs (AISC) for the most fuel-intensive producers could rise by $80-$120 per ounce if oil remains at current levels through 2026.

• Gold is up 3.66% over the past month at $5,061.70, but the cost side of the equation is deteriorating fast for energy-heavy operators.

What happened

Brent crude has held above $90 for the past month while spot gold climbed $178.80 to $5,061.70. The gap between those two moves is creating a cost problem for producers, and the impact is not evenly distributed.

Open-pit mining operations - which rely heavily on massive haul trucks, drilling rigs, and diesel-powered equipment - are significantly more exposed to energy inflation than their underground counterparts. Diesel typically accounts for 15-25% of total operating costs at a large open-pit gold mine, compared with roughly 5-10% for underground operations that depend more on electricity for ventilation, hoisting, and drilling.

With Brent crude holding stubbornly above $90, the fuel bill differential between these two mining methods has widened to a point where it is materially affecting relative margins. For the most diesel-intensive open-pit producers, AISC could climb by $80-$120 per ounce on energy costs alone - a meaningful hit even with gold above $5,000.

Who’s involved

The producers most at risk are those running large-scale, truck-intensive open-pit operations in remote locations where fuel must be transported long distances. Major operations across West Africa, parts of Latin America, and the Australian outback fit this profile. Companies like Barrick Gold, Newmont, and Gold Fields all have significant open-pit exposure in their portfolios, though each has a different blend of underground and surface operations that modulates the overall impact.

Mid-tier and junior producers with single-asset open-pit profiles are arguably in the most precarious position. They lack the portfolio diversification to offset rising costs at one site with lower-cost production elsewhere. Conversely, operators with predominantly underground or hydroelectric-powered assets - such as Agnico Eagle’s Canadian operations - are relatively insulated.

Why it matters

Margins matter as much as price, and the current environment is creating a widening gap between the best-positioned and worst-positioned producers. In 2022, when oil spiked following Russia’s invasion of Ukraine, open-pit-heavy producers saw AISC rise 10-15% faster than the sector average. A similar dynamic is taking shape now.

Rising input costs could constrain supply growth at a time when demand remains robust. If margins compress enough, some higher-cost open-pit projects may be deferred or scaled back, tightening the supply pipeline in the medium term. That is ultimately supportive for gold prices - but cold comfort for shareholders in the most exposed miners watching their cost curves steepen.

Many of the regions where open-pit mining is most prevalent - West Africa, parts of South America - are also areas where fuel supply chains are vulnerable to disruption. Any escalation in geopolitical tensions that pushes oil higher would compound the problem.

What to watch

Upcoming quarterly production reports from major gold miners in April - AISC guidance revisions will reveal just how much energy inflation is biting. The Brent crude trajectory matters: a sustained move above $95 would push the most exposed producers into genuinely uncomfortable territory, even with gold at these levels. The gold-to-oil ratio, which has historically been a useful gauge of miner profitability, sits around 55 barrels per ounce - healthy by historical standards, but deteriorating from the 60-plus range seen in late 2025.

Gold’s weekly pullback of 0.59% is minor. Whether the cost side catches up with the price side for open-pit operators over the next two quarters is not.

This article is for informational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.