The financial turmoil crushing industrial-metals equities has a silver lining: lower energy prices can be a boon to miners.
“It’s a big positive,” said David Harquail, CEO of streaming and royalties company Franco-Nevada. Fuel is a key operating cost for miners because it’s needed to run the giant machines that drill and process massive volumes of ore.
Mining companies are “big energy consumers and to the extent their costs are lower, that helps their margins", Harquail said in a phone interview. “If you look at the typical open pit, just the energy is about 25% of the cost of moving rock and crushing rock.”
How positive the effects will be varies by company depending on the type of metal they produce and how they mine it. “The more downstream processing is involved to the refined commodity, the more the oil impact is diluted,” Colin Hamilton, an analyst at BMO Capital Markets, said in a research note.
For gold companies, already benefiting from prices trading near a seven-year high, the likelihood of a positive impact is higher. For a company with cash costs of, say, $800/oz, roughly $200 would typically be energy costs, Harquail said. With energy prices close to halved, that’s a savings of $100/oz, he said.