Oil boosts risk of gold miner cost revisions: Jefferies

Elevated gold prices won’t be enough to help miners offset cost increases of as much as 9% if oil prices remain at current levels through the second half of 2026, New York-based investment bank Jefferies says in a new report.

The U.S.-Iran conflict has tightened global oil markets enough that prices near $90-$100 (C$124-C$138) per barrel could persist into 2027 because inventories are being depleted, Jefferies mining analyst Fahad Tariq said in a note published Thursday. That has pushed investors to look past the direct diesel cost impact on gold miners to the second- and third-order impacts on consumables and freight, where inflation tends to emerge with a lag and is more difficult to control, he said.

Record bullion prices have driven strong earnings growth at gold miners this year, fueling expectations of rising cash flow. Even so, investors shouldn’t overlook the risk that a sustained rise in oil prices could curb or reverse some of those gains, Jefferies says.

“Most companies in our coverage can absorb higher oil prices for one quarter and remain within their 2026 cost guidance range,” Tariq said in a note published Thursday. “However, if elevated oil prices persist into the second half of 2026 and consumables reprice concurrently, the risk of upward cost guidance revisions increases.”

Inflection point

Most gold producers built their 2026 budgets around oil prices closer to $70 per barrel, Jefferies research shows. Oil has averaged between $90 and $100 a barrel since the conflict in the Middle East erupted in late February, an increase of as much as 45% over budgeted amounts.

“It’s unlikely that $70 per barrel oil will return anytime soon,” Tariq said.

As cost risk shifts from known and manageable items such as fuel to lagged and harder-to-control inputs such as consumables, an inflection point will likely occur in this year’s second half, the analyst said.

While fuel accounts for only 13% of a typical gold mine’s cost structure, materials and consumables represent about one-third, with labour accounting for nearly half of operating costs. Sustained oil prices of $90-100 per barrel could increase sector-wide all-in sustaining costs (AISC) by 5% to 9% above original 2026 budgets. That’s equivalent to a range of $85 to $160 per oz., Jefferies calculates.

Vanishing buffers

Miners and their suppliers are already grappling with higher energy-linked manufacturing costs and freight rates. Once inventory buffers are exhausted, higher replacement costs are likely to surface, particularly for cyanide, explosives and steel-based inputs.

Open-pit operations are seen as particularly vulnerable because they consume larger quantities of diesel, explosives and other consumables than underground mines. Remote operations could also face greater freight-related cost pressures. Transport expenses alone could add another $17 to $34 per oz., according to the report.

While mining company executives largely downplayed risks linked to consumables inflation following the release of first-quarter results this spring, “we think it is a key area to keep an eye on,” Tariq said.

“Consumables inflation typically lags oil by about one to two quarters, reinforcing the second half of 2026 as the key risk window. Consumables represent the most underappreciated risk, in our view.”

Labour risk

Direct fuel costs are expected to have a smaller impact on mining operations.

Based on company disclosures, Jefferies estimates higher oil prices would add about $16 to $36 per oz. to AISC, or about 1% to 2% of total costs. Many miners have diesel hedges, access to grid power or other mechanisms that help limit short-term exposure.

Although labour costs have not yet shown a meaningful link to higher oil prices, with wage growth in the industry now averaging around 5%, persistent inflation could eventually affect contractor rates and wage negotiations, particularly in remote mining regions.

Labour figures to be “an important consideration for 2027 budgeting,” Tariq wrote.