Strong cash flows and solid balance sheets drive the sector
By Stefan Breintner, Head of Research & Portfolio Management, and Manuel Zeuch, Research & Portfolio Management at DJE Kapital AG
Gold mining stocks have outperformed (in percentage terms) the gold price itself and the broad commodities market so far this year. The key factors behind this are the demand for gold as a safe haven on the one hand and the current high cash flow potential on the other.
Gold mining shares have outperformed the gold price itself (in percentage terms) so far this year. Calculated in euros, the HUI gold mining index was up over 50% as at 26.08.2025, compared to an increase in the gold price of around 12%. This means that shares in gold producers also significantly outperformed the broad commodities market. The basis here is the MSCI World Materials Sector Index, which also includes the most important gold producers. The commodities market as a whole largely stagnated in euro terms in 2025. However, the picture is different over the last five years: a price increase of around 70% for physical gold in euro terms contrasts with a price increase of just under 40% for the HUI gold mining index - or around 50% if the dividends paid during this period are taken into account.
Cash flow as a key factor
So why have gold mining shares recently outperformed physical gold again, and how likely is it that this trend will continue? While physical gold continues to be in demand as a safe haven, listed producers in particular are benefiting from a revaluation. Negative factors such as cost inflation, high investments, currency devaluations and operational challenges had previously put the industry under pressure. However, the stabilization of extraction and production costs is currently having a positive effect. This development could contribute to an improvement in margins in the medium term and further increase the attractiveness of the sector.
Looking at the world's largest gold mining group, Newmont, pure production costs are expected to rise by almost 49% to USD 1,126/oz (oz = troy ounce of gold weighing 31.1 grams) in the period 2020-24. The so-called "All In Sustaining Costs" (AISC = direct production costs) rose by 35% to USD 1,516/oz. Newmont can be regarded as a global industry benchmark due to its global presence with production sites in Asia/Australia, North and South America and Africa. Around 50 % of production costs are accounted for by wages, around 30 % by materials (e.g. chemicals, spare parts, explosives) and 15-20 % by energy costs (diesel, electricity). Price pressure has recently eased, particularly with regard to material and energy costs, meaning that only moderately rising or stagnating costs are likely in the near future. Growth investments are generally not included in the AISC. Specifically, an AISC level of around USD 1,500/oz means that - excluding growth investments - free cash flow is generated from a gold price of more than USD 1,500/oz. Lower prices, on the other hand, would result in a negative cash flow. This example calculation illustrates the current high cash flow potential: with a gold price of around USD 3,350/oz and AISC in the range of USD 1,500-1,700/oz, the free cash flow generation per fine ounce produced is historically high. With a realized gold price of USD 3,320/oz, the company generated free cash flow of USD 1.71 billion in the last quarter (+188 % year-on-year) - a record figure on a quarterly basis. If this trend continues in the third quarter, Newmont would be debt-free at the end of September, as net debt as at June 30, 2025 was only USD 1.4 billion (-56 % year-on-year) due to the aforementioned high free cash flow generation.
For the sector as a whole, it can currently be stated that with gold prices of over USD 3,000/oz, free cash flow generation is very high. This strong cash generation leads to significantly more solid balance sheets and at the same time opens up additional opportunities for shareholders to participate more strongly in the company's success - for example through share buybacks. Among the largest gold mining companies, Newmont, Kinross and Agnico Eagle, for example, currently have a high level of buyback activity.
Weak forecast quality as a burden
Another key reason why gold mining shares have lagged behind the gold price over the past five years is the repeated failure to meet communicated production and cost targets as well as political uncertainty and upheaval in key mining regions. Numerous companies in the sector - including established heavyweights such as Newmont and another leading producer - regularly missed their own production forecasts, which weighed on investor confidence. This operational volatility contributed to the fact that many mining stocks underperformed even in a generally positive market environment for gold.
One of the few positive exceptions is the Canadian group Agnico Eagle. The company has stood out among the major mine operators in recent years thanks to its highly accurate forecasts and stable production development. With a market capitalization of around USD 65 billion, Agnico Eagle is the second-largest listed gold company after Newmont and the world's third-largest gold producer. The management has a solid track record: In the last 14 years, production forecasts have only been missed once. Agnico has also paid dividends continuously since 1983. The geopolitically stable production portfolio is also worth mentioning, as around 90% of production comes from Canada - a country with reliable framework conditions and low political risk.
Keeping an eye on political risks
One example of how serious political upheavals can be is the difficult situation at the Loulo-Gounkoto mine in Mali (the mine accounts for around 15% of Mali's GDP), which is operated by a large international group. The Malian government is demanding, among other things, a higher stake in the mine and taxes on unrealized sales. The company sees no legal basis for this and rejects the demands. No revenue can currently be generated as exports are blocked. It is currently difficult to predict how this conflict will end. Mali and other regions in Africa such as Senegal, the Ivory Coast and Ghana are generally interesting production regions for the industry. They are often characterized by above-average ore grades, combined with comparatively fast approval procedures and low operating costs. Endeavour Mining is one example of the fact that significant successes can be achieved in Africa.
Endeavour Mining is one of the leading gold producers in West Africa and operates mining projects in Senegal, Burkina Faso and the Ivory Coast. All mines were built on time and within budget - proof of the company's operational efficiency. Active in the region for more than ten years, Endeavour maintains close relationships with local authorities and communities. As one of the largest local employers and taxpayers, the company is firmly anchored in the region. Against the backdrop of current challenges faced by other market players, the management emphasizes open dialogue, fair dealings with all interest groups and the company's self-image as a responsible partner. So far, there has been no resistance from the local population - an indicator of successful local integration.
New projects in the gold sector are generally complex and commissioning is usually associated with numerous challenges. Today, the period from the discovery (exploration) of an interesting gold deposit to production at the mine site can be realistically estimated at around 20 years. New, unexpected problems often arise in the "final meters" of a new project. South African Goldfields had to adjust its forecasts several times in 2024 due to problems at its most important growth project Salares Norte in the Atacama region of northern Chile. Initially, there were problems with populations of chinchillas, which are protected species and had to be relocated, and then extreme weather events had a negative impact. As the gold processing plant is located at an altitude of around 4,400 m, the Chilean winter of 2024 led to increased freezing of the processing facilities. In 2025, operations were more stable; the company came through the winter well and is confident of meeting its production forecast.
Conclusion: gold price remains the driver
The management teams of listed gold companies should have learned from past mistakes - especially overly optimistic forecasts - and manage the expectations of the capital market more realistically in future. The high cost inflation of recent years is likely to have reached a plateau or, in some areas, be on the decline for the time being. The most important profit driver is and remains the gold price. As previously analyzed, there is much to suggest that an environment of high gold prices (above USD 3,000/oz) can continue. Free cash flow generation and the probability of increased capital returns to shareholders remain correspondingly high in such an environment.
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