Gold majors are out of debt and will have to start buying, Lundin says

Record margins and no leverage left to pay down mean the next phase of this bull market is acquisition, the Gold Newsletter editor tells Kitco News The biggest gold miners on earth are making more money than they know what to do with. They've paid off the debt. They've raised the dividend. They've bought back the stock. And they're still swimming in cash. Brien Lundin thinks he knows where it goes next. "The big producers are making so much money that they have no debt on a net basis," the editor of Gold Newsletter told Kitco News. "They can only dividend so much money out. They can only buy so much stock. At some point they're going to have to rebuild the pipeline." In other words, they're going shopping. "I think that's going to be the next big phase of this bull market, when we see the majors start to buy those big projects." The math supports him. The World Gold Council put the average all-in sustaining cost margin at $3,076 an ounce in the first quarter, a record, and up 134% in a year. Gold traded at $4,390.60 Tuesday, down $14.50 after touching $4,443.90 earlier in the session. It set a record of $5,597 back in January. But the part that makes this a trade rather than a curiosity is who hasn't moved yet. "Everything up and down the food chain, the producers, the developers, have moved except really for the explorers," Lundin said. "Right now the explorers offer tremendous upside, because they are going to be the last to move." So the majors need projects they can't generate fast enough on their own, and the explorers are sitting on projects at roughly pre-rally prices. The gap between those two things is the story of the next year. Why he wants costs to go up Production costs keep climbing. All-in sustaining costs (AISC) hit $1,785 an ounce in the first quarter, the 28th straight quarter of year-over-year increases. Lundin wants them higher. "One of the things I'm looking for is for AISC, the cost of production, to actually increase now," he said. "That used to be a bad sign. But I want to see the cost of production rising along with rising production from the majors." It sounds backwards until you work out what it would mean. Costs rising alongside output would tell you producers are finally pushing lower-grade rock through the mill instead of mining only their best material to make a quarter look good. At these margins, volume is the only job worth doing. "The mission of a big producer right now is to run as much gold out the plant as they possibly can at these prices." Copper is running the same play. It hit an all-time high of $14,617 a tonne on the London Metal Exchange on Tuesday, a second record session in a row. Deposits that made no sense at lower prices are suddenly economic, Lundin said, and it will take nearly all of them to close a supply gap he called something "we are unlikely to see ever again in our investing careers." One cost is climbing faster than everything else, and it isn't fuel or labour. Government royalties rose 85% year over year against a 70% rise in the gold price, and have doubled as a share of production cost since 2021, from 6% to 12%. Lundin has seen this movie four or five times now. "In good markets, governments renegotiate those deals that they had," he said. "They don't like to see the miners making outlandish profits in their eyes. But they don't understand that those miners have taken significant risk to get to that point." It's changed where he looks. These days he leans toward North America, Mexico and Latin America, on the simple logic that at this gold price you no longer have to accept a difficult jurisdiction to find something worth owning. The one thing $4,400 gold can't fix Price a metal high enough and most of a mining company's problems just evaporate. Lundin doesn't hedge on how far that goes. Bad grade? "Cutoff grades are dropping," he said, and you'd have to get to an extreme cas...