Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Gold Mining Industry
Transcript
- Lucas: Gold at over forty-one hundred dollars an ounce. The GDX, the gold miner ETF, up more than four percent just this past week alone. That feels like a screaming buy signal — unless you actually look at what's happening inside the mining companies. Luna: You're going to tell me the miners aren't cashing in as much as the spot price suggests. Lucas: Exactly. The gold price is telling one story. The cost structure is telling another. And in a stagflation environment — where we've got sticky CPI around three-point-three percent annualised, but wage growth and energy costs are running hotter — miners are getting squeezed from both sides. Luna: I remember the 1970s playbook: gold surged, but mining stocks lagged because input costs ate the profits. Is that what we're seeing now? Lucas: Pretty much. The big producers — Newmont, Barrick, Agnico Eagle — they're all reporting all-in sustaining costs that have crept up fifteen to twenty percent over the last two years. Diesel, explosives, steel grinding media, even the tires on the haul trucks. Everything costs more. Luna: And labor. That's a huge one. The June jobs report showed payrolls grew by only fifty-seven thousand, but average hourly earnings are still climbing. For miners, especially skilled workers like heavy equipment operators, wages are up sharply. Lucas: Right. The unemployment rate dipped to four point two percent, but the labor force participation rate hit a fifty-year low outside of COVID. That means fewer people available to work in remote mining towns. Companies are having to offer signing bonuses, housing stipends, higher base pay — all of which hits the cost line. Luna: So what are they doing about it? I mean, gold is at four thousand plus — they can't just sit on their hands. Lucas: A couple of things. First, they're investing heavily in automation. Autonomous haul trucks, remote drilling, even ai driven ore sorting. That reduces the need for human labor at the sharp end. Rio Tinto and BHP have been doing this in iron ore for years, but the gold miners are accelerating now. Luna: Second thing? Lucas: They're hedging less. In the old days, miners would sell forward their production to lock in prices, which capped upside. Now, with costs rising, they want exposure to the spot price. So they're running unhedged, or using only minimal hedges. That's a bet on continued gold strength. Luna: It also makes their earnings more volatile. If gold corrects ten percent, their margins evaporate fast. Lucas: Exactly. And that's why the market isn't piling into gold miners the way you'd expect. The GDX is up, but it's still below its 2020 highs in real terms. Investors are saying: show us the free cash flow. And free cash flow is being squeezed by those rising costs. Luna: One thing I've noticed: some of the mid-tier miners are actually consolidating. I saw that Agnico Eagle made a play for a junior producer in Canada last month. Is that a trend? Lucas: Yeah, mergers and acquisitions are picking up. The logic is scale. Bigger operations can spread fixed costs — like that autonomous truck fleet or a new processing plant — over more ounces. Plus, the juniors are starved for capital because equity markets are lukewarm on miners. So the majors can pick them up at reasonable prices. Luna: It sounds like a tale of two industries: the big guys get bigger and automate, the small guys get bought or go under. Lucas: That's exactly right. And from an investor perspective, you have to be selective. Not all gold miners are created equal in this environment. Look at all-in sustaining cost per ounce, debt levels, and whether they're in geopolitically stable jurisdictions. Canada, Australia, Nevada — those are safer bets than, say, West Africa or parts of Latin America right now. Luna: And what about the demand side? I mean, gold's rally isn't just about stagflation fears. Central banks are still buying heavily — China, India, Poland — they added over a thousand tonnes last year combined. Lucas: That's a structural support. Central bank buying is less price-sensitive than retail or ETF demand. They're diversifying away from the dollar and the euro. That bids up the price floor. So even if speculative interest cools, you've got that sovereign bid underneath. Luna: So where does that leave the average listener who's thinking about gold miners as a stagflation hedge? Lucas: I'd say: don't assume high gold prices automatically mean high miner profits. Do your homework on costs. And maybe look at royalty and streaming companies — Franco-Nevada, Wheaton Precious Metals — they avoid the operational headaches and just take a cut of production. Their margins are less sensitive to diesel prices and union negotiations. Luna: That's a good point. Royalty companies have been my preferred play for a while. Less drama. Lucas: And if walking through the economy with us has made something click — whether it's gold miners or just understanding why your grocery bill is higher — it's worth mentioning that listener support is what keeps this show rolling. No ads, no sponsors, just people who find it useful. Luna: Yeah, a couple of dollars a month genuinely makes a difference. If you've gotten value from these episodes, buy me a coffee dot com slash fexingo. That's all lowercase. It's how we stay independent. Lucas: Right. And to close the loop on gold miners — I think the next twelve months will separate the operators from the pretenders. The ones that manage costs and maintain free cash flow will reward patient investors. The ones that don't will get left behind, even with gold at forty-two hundred. Luna: So it's a stock-picker's market within a commodity super-cycle. I'll be watching the Q3 earnings calls closely. Lucas: Me too. Specifically, watch what they say about all-in sustaining costs and capital expenditure guidance. If they're guiding costs lower while gold holds, that's your signal.