Gold after the correction: why mining shares are moving back into focus

The gold price is, and will remain, by far the most important influence on the earnings of gold mining companies. Gold equities consequently came under temporary pressure as well. Many mining stocks corrected by 35 to 40 per cent from their 2026 highs. Alongside the lower gold price, higher energy costs proved a particular headwind and put cost guidance under pressure.

Following the recent share price correction, valuations across gold mining companies imply a long-term gold price of roughly USD 3,200 to 3,700 per ounce on average. That remains below the current spot price. This suggests that, despite historically high gold price levels, the sector is not pricing in excessive expectations. At the same time, the industry is in far better operational and financial shape than in previous cycles. Adjusted for the temporary burden of higher energy costs, cost discipline has improved markedly compared with past downturns. Supported by continued strong margins, companies are better equipped to withstand potentially lower gold prices. Add to that solid balance sheets and, in most cases, net cash positions, which underline the sector's financial strength. Free cash flow also remains robust, creating additional scope for capital measures such as share buybacks.

Newmont Mining, the world's largest gold mining group, is a good case in point. For the second quarter of 2026, the company reported earnings per share of USD 2.10, free cash flow of USD 2.2 billion and a net cash position of USD 3.9 billion. The cost performance stands out in particular. Total production costs including the capital expenditure needed to maintain existing capacity, known as all-in sustaining costs (AISC), came in at USD 1,621 per ounce, around ten per cent below market expectations. Management also reaffirmed full-year guidance of USD 1,680 per ounce.

On top of this comes an extensive share buyback programme. Of the USD 6 billion approved in total, USD 4.3 billion is still outstanding, equivalent to just under four per cent of the company's market capitalisation. Newmont operates numerous tier-1 mines and expects production to edge higher again from 2027. Assuming a gold price of USD 4,000 per ounce, the potential for free cash flow would be substantial, creating further room for share buybacks. The shares currently trade around 17 per cent above their level at the start of the year.

Agnico Eagle, the second-largest gold mining stock by market capitalisation after Newmont, also stepped up its own share buybacks in the second quarter and increased the programme to USD 2 billion. In the most recent quarter, the company once again confirmed its high operational quality and efficiency. Production, EBITDA (earnings before interest, taxes, depreciation and amortisation) and adjusted earnings all came in ahead of market expectations. Cost performance was better than expected too, with all-in sustaining costs of USD 1,459 per ounce.

The balance sheet also remains exceptionally solid, with USD 3.5 billion in liquid assets against debt of just USD 197 million. The Odyssey, Detour Lake, Upper Beaver and Hope Bay growth projects are all progressing to plan. Despite higher capital expenditure, Agnico therefore remains one of the sector's most profitable producers, although 2026 production is likely to come in towards the lower end of the target range. The reasons include temporary seismic and geotechnical issues. This shows that even high-quality, well-run companies such as Agnico Eagle are not entirely immune to operational setbacks.

Operational risks in underground mining, chiefly as a result of seismic events and geotechnical instability, have been a broader theme across the sector over the past twelve months. This was particularly evident at a Canadian mid-tier producer's Young-Davidson mine in Canada. Two seismic events in June 2026 damaged parts of the infrastructure and hampered access to higher-grade mining areas. Extraction rates were reduced as a result and full-year production guidance was lowered.

Other producers have experienced comparable incidents. Agnico Eagle had to suspend operations temporarily at its Malartic complex in Québec following a geotechnical event, while another producer reported temporary disruption to extraction rates and ore grades at Australia's Agnew mine. That company also came under pressure from reports of a potential licence withdrawal in Ghana. Should the licence for the Tarkwa mine not be extended beyond April 2027, production and EBITDA could fall by 15 to 20 per cent. Ghana therefore remains a market with elevated political risk, even though West Africa remains fundamentally attractive as a gold mining region.

Endeavour Mining is West Africa's largest gold producer and has demonstrated for many years that it can mine gold profitably in countries such as Burkina Faso, Côte d'Ivoire and Senegal. Second-quarter production beat expectations while costs came in lower than anticipated. Free cash flow comfortably exceeded consensus and net cash rose to USD 254 million. At a valuation of around 3.1x EV/EBITDA for 2026, Endeavour Mining trades at a comparatively low multiple relative to its sector peers. This continues to reflect a marked discount to the current gold price level.

Overall, the outlook for gold and gold producers remains constructive. The recent correction in the gold market is best understood as a consequence of interest rate and macroeconomic headwinds combined with the preceding high level of optimism and correspondingly weak market technicals – rather than as a sign of structural weakness. In the short term, higher energy prices, higher real interest rates and a firmer US dollar weighed on the market; the medium-term fundamentals, however, remain intact. Supporting factors include persistently robust central bank demand, geopolitical uncertainty, the structural need for diversification, and the prospect of falling real interest rates and a possible revival of inflows into exchange-traded gold funds (ETFs).

Among central banks, China's central bank, the People's Bank of China (PBOC), stands out in particular. It has now bought gold for 21 consecutive months and, following the correction in the gold price, has increased its purchases to 60 tonnes so far in 2026, after around 26 tonnes for the whole of 2025, lifting its gold holdings to a record 2,366 tonnes. Poland has likewise acquired almost 64 tonnes since the start of the year, keeping it at a high level. Central bank demand looks set to remain strong in the years ahead. In a recent survey by the World Gold Council, the gold industry's trade body, 90 per cent of the central banks polled said they intended to continue buying gold actively over the coming years. While gold reserves account for more than 60 per cent of currency reserves in developed markets, the equivalent share in emerging markets averages less than 30 per cent.

After the sharp share price correction, valuations across gold mining equities do not look stretched. At the same time, balance sheet quality, free cash flow generation, cost discipline and capital allocation have all improved significantly compared with earlier cycles. This makes the sector more resilient to potentially lower gold prices. Companies with a high-quality asset base, solid balance sheets and considerable financial flexibility are therefore better positioned. At gold prices above USD 4,000 per fine ounce, the potential to generate substantial free cash flow remains significant. This creates additional scope for share buybacks over a period of several years.

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