When costs rise because the gold price rises

Upon closer inspection, the much-discussed cost increases turn out to be predominantly price-driven. Royalties, profit-based taxes, profit-sharing components, and exchange rate effects account for the lion’s share of the AISC increase, not operational deterioration.

The only significant exogenous uncertainty is the oil price. Since diesel and electricity accounted for about one-fifth of cash costs in 2025, according to S&P Global, realized AISC could trend toward USD 1,800–USD 1,900 per ounce if oil prices remain high. A BMO analysis quantifies the sensitivity precisely: For every 10% increase in the oil price, gold production costs rise by about 2%. Newmont itself calculated its February guidance based on USD 70/barrel Brent and estimates the effect of a USD 10/barrel change in oil prices on AISC at around USD 12 per ounce. With a margin expansion by a factor of 6.5 since 2015, this is a burden that gets lost in the noise of the gold price rally.

Exogenous vs. endogenous: where the real challenge lies

Differentiation is certainly warranted. The structural AISC inflation since 2020 is real – and it has two sources that must be evaluated fundamentally differently:

• Exogenous cost drivers such as diesel, steel, reagents, or tires are now well covered by the hedging and procurement policies of established producers. They are operationally controllable.
• Endogenous cost inflation, such as falling ore grades, declining mine lives, or rising stripping ratios, on the other hand, cannot be hedged. The mining industry has been operating against the law of diminishing returns for decades, and no forward contract in the world can bring back an ore grade once it has been mined.

This is precisely where the sector’s operational dividing line lies. Senior producers with Tier 1 assets and long mine lives are the structural beneficiaries – they convert margin expansion almost entirely into free cash flow. Mid-tier and junior producers with more complex assets, shorter mine lives, or capital-intensive growth projects also realize margin expansion, but with higher operational risks.

Grow, deleverage, distribute – all at once

Noteworthy is the new multidimensionality of capital allocation. The old either-or logic – growth, balance sheet repair, or distribution – is a thing of the past. Today, the industry can grow, deleverage, and distribute simultaneously. A remarkable constellation for a sector that, just a few years ago, was considered synonymous with capital destruction.

Among our premium-partner miners, 2025 was the year capital came home to shareholders rather than back into the ground. Barrick led the structural reset with a record USD 2.4bn returned to shareholders, lifting its dividend by 140% alongside a USD 1.5bn buyback and adopting a new policy targeting 50% of attributable free cash flow as annual payout, with a fixed-base quarterly dividend plus a year-end performance top-up. Newmont returned a sector-record USD 3.4bn through dividends and repurchases, drawing USD 3.6bn from its USD 6bn authorization while reducing net debt by USD 3.4bn – closing 2025 in a USD 2.1bn net cash position. Agnico Eagle returned a record USD 1.4bn (USD 803mn in dividends, USD 600mn in buybacks) and raised the dividend a further 12.5% for 2026, while protecting an unbroken payout record that dates back to 1983. Kinross lifted its dividend by 17% and its buyback target by 20% to USD 600mn. Endeavour Mining sent USD 435mn to shareholders, 93% above its own minimum commitment, and pre-committed to at least USD 1bn over 2026-2028. Harmony rewrote its policy from 20% to 30% of net free cash with optional upside to 50%, posted a record FY25 payout of ZAR 2.4bn (USD 133mn), and more than doubled its interim dividend again in H1/FY26.

Pan American Silver returned USD 221mn via dividends and buybacks and raised its payout in three successive quarters, capped by a 29% Q4 increase. Mineros returned USD 42mn against a record net profit of USD 145mn while sustaining a five-year dividend growth rate close to 17%. The royalty and streaming partners embody the new discipline most cleanly, with Royal Gold marking its 25th consecutive annual dividend increase.

Equally telling are the capital-return inflections among the rest of our partners. Equinox Gold, having cut net debt by USD 1.1bn since Q2/2025, declared its first-ever dividend (USD 0.06 annualized) and inaugural NCIB in February 2026, the classic handover from build-out to capital return. Elemental Royalty, the post-merger combination of Elemental Altus and EMX, did much the same with a maiden USD 0.12 annual dividend, and went one step further by offering registered shareholders the option to take that dividend in Tether Gold tokens. First Majestic operates a revenue-pegged formula (1% of net quarterly revenue) that nearly doubled its per-share payout across 2025 as silver and gold prices rose. Fortuna prefers buybacks to dividends, having cancelled 3.4mn shares at an average USD 9.53 before renewing the program for a further 5% of float in May 2026. The remainder of our partner roster (explorers, developers, and turnaround operators) is appropriately reinvesting in resource expansion rather than payouts, which in this part of the cycle is its own form of discipline.

The four pillars of the new discipline

Four behavioral changes are driving this turnaround and fundamentally distinguish the current cycle from previous bull markets:

• Capex discipline: Even the capex increases of around +25% yoy expected for 2026 remain well below the 2011/12 peaks. More importantly: The additional funds are flowing primarily into brownfield expansions of existing Tier-1 assets rather than into greenfield megaprojects.
• Hedging restraint: The industry has learned from the hedging debacle of the late 1990s and early 2000s: Leading producers now sell at the spot price, thereby fully participating in the rally, rather than giving it away to banks via forward sales as in previous cycles.
• Conservative valuation: The majors value their reserves at USD 1,700– USD 2,200/oz – at a spot price of around USD 4,600/oz. Double effect: Reserves are hedged against a price decline, and there is significant upside potential lurking on the balance sheets.
• Dilution discipline: The most telling indicator of the paradigm shift: During the 2003–2012 supercycle, the majors’ share count grew by double digits annually in some cases – driven by acquisitions and equity offerings. Today, dilution is significantly lower, and many producers are even actively buying back their own shares.

The industry has learned from the excesses of the past. The only open question is whether investors have also internalized this lesson.

The next wave of M&A: reserve acquisition as a strategic imperative

The growth picture remains divided: Senior producers expect an average production decline of around 4.5% by 2026, while intermediates are expanding by 5.4% and juniors by 16.8%. Organic growth is clearly shifting toward the “new generation” of mines – Côté, Greenstone, Valentine, Tocantinzinho, Blackwater, Goose, Media Luna. Any major seeking access to this generation’s reserves faces a simple choice: build, discover – or buy.

This is precisely where the next wave of M&A begins. In 2025, three major transactions dominated the market: Coeur/New Gold (USD 7bn), Gold Fields/Gold Road (USD 3.69bn), and Equinox/Calibre (USD 2.13bn). Three structural features set this wave apart from the acquisition frenzy of the 2003–2012 supercycle:

• All-stock and mixed cash-stock deals dominate; pure cash deals are the exception. Buyers are using their relatively overvalued shares as acquisition currency instead of spending scarce cash.
• Premium spreads between 11% and 39% – far removed from the 50–80% premiums of the last supercycle.
• Strategic logic consistently focuses on acquiring reserves, not diversification: Northern Star/De Grey, Pan American/MAG Silver, Coeur/New Gold, Fresnillo/ Probe – not a single conglomerate deal, not a single move into foreign commodities.

The structural context: declining discoveries. Data from Richard Schodde provides the fundamental rationale for this M&A logic: While 202 discoveries were reported in the peak year of 2009, there are currently only 70–90 per year; the average cost per significant discovery has risen from around USD 50mn before the boom to around USD 200mn today. Since 2010, only 1,967 Moz of gold have been discovered globally across 645 deposits – while 1,470 Moz of gold were mined during the same period. This sounds like reserve growth, but it is only positive if one factors in resource growth at existing mines. When it comes to genuine new discoveries resulting from independent exploration activities, the balance is negative.

Gold Mining Stocks: Active Management Is Key

Readers are already familiar with our distinction between safe-haven gold – i.e., physical gold to preserve purchasing power – and performance gold – i.e., mining stocks and mining funds for capital appreciation. Given the diverse risks involved, we advocate an active investment strategy when dealing with gold mining stocks. This is because not only are the bull markets typically much more pronounced than in conventional stock sectors, but so are the bear markets.