We live in interesting times. Not only are we experiencing a major bull market for metals, but we’re also going through a simultaneous oil boom that has seen average prices triple over the past five years.

These both sound like good developments from a commodities investment perspective. But, as the saying goes, interesting times can be a curse: there are unusual synergies between the two surging markets that can have mixed results for investors. One key effect of high oil prices is that mines – which are energy-intensive operations – are paying more for fuel, increasing operating costs. Thus, we saw a rash of companies reporting less-than-expected profits last year, and blaming the shortfall on high oil prices.

Obviously, higher fuel costs affect every mine. But some factors may make an operation particularly prone to increased energy expenses. With oil prices forecast to remain reasonably high for the foreseeable future, such considerations are worth looking at when deciding whether to put your money into a mining venture.

The biggest factor affecting fuel use is the type of mining: underground or open pit. Open pit mining requires a great deal of trucking, and consequently a lot of diesel. Department of Energy studies show that fuel used in ore transport is in fact the most energy-intensive part of mining, accounting for 37% of total energy consumption across all mining sectors. Underground mines, however, largely avoid such expenses by running on cheaper electric power.

Particularly hard hit are operations working low-grade or deep-lying ore where a lot of rock has to be moved to produce metal. Porphyry copper mines fall into the former category given that many are working ores at less than 1 percent grade. Michael Farrell, who runs the World Mine Cost Data Exchange, estimates that every doubling of the U.S. dollar oil price results in a 27.5 percent increase in overall costs for mining, milling, and smelting at large, open-pit copper mines.

A quick calculation shows the impact this has on profits. Over the past year and a half, the price of copper has gone up about $800 per tonne, while the price of oil has, at times, doubled last year’s average levels, meaning a 27.5 percent increase in operating costs for large, integrated copper mining/smelting operations. Globally, the average price to produce a pound of copper is about 70 cents, or about $1550 per tonne. A 27.5 percent increase would then add $425 per tonne in operating costs, wiping out over half of the increased revenue generated by higher copper prices.

That being said, copper miners recognize their vulnerability to oil prices and have therefore been one of the leaders in increasing the energy efficiency of their operations. Phelps Dodge, the word’s second largest copper producer, has saved on fuel by retrofitting haul trucks with higher-efficiency engines, helping to reduce production costs by about 10 cents a pound. Still, this is a gradual process, and in the meantime producers are at risk during times of high oil prices. The upside is that if prices abate, as we’ve seen lately, copper producers who are already doing well could see their net revenues soar. And, of course, not all copper miners mill or smelt their own ore, limiting energy use and thus reducing exposure to fuel price fluctuations.

For those operations that do process their own product, it’s important to consider the method used. Basically, there are two ways to get metals from rock: fire – smelting – or chemicals. According to DOE, smelting uses over 300 times the energy of chemical methods such as electrowinning. In this respect, U.S. operations have an advantage over mines in some other parts of the world – most American mines use chemical processing. Electrowinning is quickly becoming the method of choice elsewhere, however – BHP, for example, announced last year that it will use the process at its new Spence copper project in Chile.

This brings up another point: electric versus direct fuel power – the two ways that a mine can run facilities such as a smelter. In most parts of the world, electric power is cheaper than using fuel directly. As mentioned, underground mines generally keep costs down by running on electricity. Remote operations, however, such as many in northern Canada, are often forced to run completely on expensive diesel. Fuel costs for such mines can multiply quickly given that the fuel needed to run mining equipment has to be shipped in, requiring more fuel to run planes, helicopters, trucks, etc.

One final area of operations that can run up energy costs for a mine is crushing and grinding of ore. Despite decades of attempting to improve the beneficiation process, crushing is still a highly power-inefficient task. According to Doug Silver, President of Balfour Holdings mine management consultants, costs tend to be higher for hard ores such as igneous sulfides or highly silicified deposits. Ores of tin, tungsten, and tantalum can also contain hard accessory phases such as beryl, which make for difficult grinding. And if ore is refractory or fine-grained – as gold is wont to be at times – it may also require more processing, leading to higher energy costs.

Of course, the fact that the mining industry as a whole is so sensitive to fuel prices also means a competitive advantage for those companies that can find innovative energy solutions. Newmont, for example, has bought up oilsands properties in Alberta, providing a “natural hedge against increased fuel costs.” And in Montana, Luzenac’s Yellowstone talc mine is run entirely on wind power. There’s also work being done on using fuel-cell-powered trucks for hauling at numerous locations, which, if implemented on a large-scale at a big open-pit operation, could quickly multiply profits for the operating company.

Ten years ago, fuel costs were something that miners gave little thought to. Given current global energy shortfalls – which will only get worse as Far East demand ramps up in the coming years – and the unstable geopolitics in the Middle East, it looks like those carefree days are gone, and energy use is going to play a significant role in determining the fortunes of mining operations.