Industry Experts: Gold Mining Giants Holding Massive Cash Will Initiate M&A, One Type of Target May See Bullish Surge

Huitong Network, September 9th—— Brien Lundin, editor-in-chief of "Gold Newsletter," points out that large gold mining companies are currently generating substantial profits. After repaying debt and distributing dividends or conducting buybacks, they still hold large amounts of cash. The next phase of the gold bull market will see a wave of consolidation in the mining industry. Exploration-focused small-cap gold stocks have not yet fully appreciated and thus have significant upside potential. However, factors such as project approval difficulties, rising royalties and taxes, and increasing energy costs remain potential risks. He believes the bullish trend in gold remains unchanged, but market expectations for Fed rate hikes may cause short-term volatility.

In this cycle, gold prices have soared continuously, with large gold producers reaping huge profits and their cash flow reaching multi-year highs. Brien Lundin, editor-in-chief of "Gold Newsletter," makes an important assessment: after major gold mining companies finish debt repayment, dividends, and stock buybacks, they are left with abundant cash and nowhere to deploy it. Therefore, a wave of mergers and acquisitions in the mining industry will become the next major theme of this gold bull market. At the same time, the copper market is seeing a similar scenario, but factors such as rising taxes, delayed project approvals, and higher energy costs still pose significant risks for mining investment.

According to data from the CME Group’s FedWatch Tool, market expectations for a rate hike at the September FOMC meeting will continue to impact precious metal asset pricing. The Federal Reserve Open Market Committee will announce its interest rate decision from September 15 to 16 local time, with the market currently pricing a 59.3% probability of a rate hike.

Excess Cash Among Gold Mining Giants, Industry Consolidation as the Next Bull Market Theme

The world's leading gold mining companies are seeing unprecedented profitability, not only clearing net debt, consistently raising dividends, and conducting share repurchases, but still holding vast amounts of cash. Lundin explains that the net debt of large gold miners has already reached zero, and there are limits to dividends and stock buybacks; therefore, in the near future, mining companies must rebuild their pipeline of resource reserves.

In simple terms, large mining companies with huge amounts of capital are about to begin acquisition of new projects. Lundin believes the next significant phase of this gold bull market will be leading mining companies acquiring high-quality large gold projects. World Gold Council data show that in Q1, the all-in sustaining cost (AISC) profit margin per ounce reached $3,076, a record high and up 134% year-on-year. In January this year, the spot gold price hit a historical high of $5,597 per ounce.

Within the industry chain, the share prices of both large producers and project developers have responded accordingly, except for exploration companies, which have yet to see an uptrend. Lundin points out, . The ability of major miners to quickly develop new projects is limited, while

Rising Costs Hide Deeper Challenges; Multiple Structural Risks Cannot Be Ignored

Gold's all-in sustaining costs (AISC) reached $1,785 per ounce in Q1, rising year-on-year for 28 straight quarters. Contrary to market intuition, Lundin actually expects production costs to keep climbing. He says,

The copper market is seeing a similar pattern; on Tuesday, copper on the London Metal Exchange hit a record high of $14,617 per tonne, marking two consecutive days of record highs. Deposits that lacked economic value during periods of low copper prices now present profitable opportunities, and such a huge supply gap is unlikely to occur again in one's investment career.

Among various costs, the increase in government royalties and taxes is the most pronounced, up 85% year-on-year, outpacing the 70% rise in gold prices. Since 2021, the share of taxes and fees in production costs doubled from 6% to 12%. During commodity bull markets, governments often revise resource agreements; high mining profits easily attract policy changes. Therefore, Lundin prefers mining projects in North America, Mexico, and Latin America—there's no need to seek assets in high-risk jurisdictions in a high-gold-price environment.

High gold prices can solve most challenges relating to ore grade, mining technology, and infrastructure—but cannot break through bottlenecks in project approvals. Lundin notes that even if gold prices rise sharply, approval delays remain hard to resolve. Another major risk lies in the equity dilution of small-cap mining companies, where massive share issuance eats into shareholder profits. This is a trap that mining investors must be wary of.

Fed Expectations Disturb Gold Prices, But the Bullish Trend Remains

Market sentiment around Fed policy continues to impact the gold price. On August 28th, Kevin Warsh, chairman of the Federal Reserve, spoke at the Jackson Hole Global Central Banking Conference, stating the fight against inflation is not yet over. The probability of rate hikes then reached 66.1%, but has since retreated to 59.3%.

Lundin does not agree with the feasibility of continued rate hikes. He states that although Warsh is highly capable, with the current massive debt levels, further rate hikes are fiscally unsustainable. Every time Warsh’s hawkish rhetoric suppresses gold prices in the short term, long-term capital quickly enters to support them.

Looking back at the 2008–2011 gold rally, gold nearly tripled, but mining stocks rose far less, mainly because diesel costs soared. Lundin analyzes that currently, gold's rise far outpaces the increase in energy costs, so profit margins are expanding. Unless there is an extreme spike in diesel prices, a scenario where gold rises but mining stocks fall is unlikely. Speaking about past investment mistakes, he admits he is good at stock picking but not at taking profits. He failed to realize gains during the silver rally in January, which was a major lesson. He refuses to offer a precise gold price target but makes the trend clear. He states,

Conclusion

In summary, high gold prices are fostering a new logic for the mining sector: large gold mining companies are flush with cash and M&A activity is set to surge, while small-cap explorers will enter a window of value re-rating. However, investors should not be blindly optimistic—higher taxes in resource-rich nations, difficult project approvals, share dilution, and rising energy costs are all real hurdles.

In the short term, gold prices will continue to be disturbed by the Fed’s rate hike expectations, but Brien Lundin believes

At 10:09 (GMT+8), spot gold is quoted at $4,375.09 per ounce.