Lundin Gold (TSX: LUG) stock rose 34% last month on the heels of record second-quarter earnings. The 34% jump in a month is a continuation of its two-year-long rally. The stock price doubled in 2024 and jumped 193% so far in 2025. There seems to be no slowing down. Is it an industry-wide trend due to the rise in the gold price or is Lundin Gold outperforming the sector?
The answer is both.
Lundin outperformed Canada’s largest gold mining stock, Barrick Gold, which fell 9.4% in 2024 but surged 79% year-to-date.
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Three factors driving Lundin Gold stock
Mining stocks are cyclical and driven by commodity prices, which are determined by the market forces of demand and supply. A mining company cannot control the price, but it can control production and costs. Lundin Gold has done just that, which helped it outperform Barrick Gold in the current growth cycle in which gold prices are surging.
Rise in gold price
The gold price has been on the rise over the past three years as world central banks have been building up their gold reserves amid geopolitical tensions. Gold is considered a safe haven and still has an exchange value worldwide. Thus, when the US dollar weakens, rising inflation devalues the paper currency and economic growth slows or falls, so investors shift their money from equity and debt to gold.
The dollar value weakens when America’s economic growth slows. The growth slows when inflation rises, making everything unaffordable. Another reason growth slows is if there is business uncertainty, such as supply shortages, tariffs, pandemics, and geopolitical tensions. At such times, consumers and businesses reduce spending and invest in gold.
A similar scenario has been playing out since 2023. First, post-pandemic consumption boosted demand and prices, leading to inflation as high as 8.2% in September 2022. To control inflation, the Bank of Canada increased interest rates from 0.25% to 5% between April 2022 and October 2023, making borrowing expensive and slowing consumption. In July 2024, when interest rate cuts began, businesses waited for more rate cuts, which stalled the increase in consumption. In 2025, when economic growth was expected to increase, Trump’s tariffs disrupted trade and affected the growth of export-led countries like Canada.
All this boosted the price of gold. A further rise is likely as trade tensions heat up and trigger a global shift in the supply chain. Gold demand from central banks worldwide will continue to drive the gold price over the next year or two.
Lundin Gold’s average realized gold price was $3,361 per ounce in the second quarter of 2025 compared to $2,379 per ounce a year ago. The record high gold price converted into 50% revenue growth in the second quarter.
Lundin Gold increases production and operating efficiency
Lundin Gold controls its mining activity depending on the gold price. It has been cashing in on this cyclical growth by increasing its production. Exploration found high-grade zones, which increased the average recovery rate to 90.9% from 89% a year ago.
Higher gold prices resulted in higher royalty payments, which partially offset the cost savings from operating efficiency. However, the widening gap between all-in sustaining costs (AISC) of $927 per ounce and the average realized gold price of $3,361 per ounce turned negative free cash flow (FCF) positive.
As per the company’s dividend policy, it passed on windfall gains to shareholders through a variable quarterly dividend of $0.49 per share in addition to the fixed dividend of $0.30 per share.
Lundin Gold turned debt-free
Lundin Gold used these windfall gains to pay off its long-term debt and build a cash reserve. This reduced finance costs to zero and increased its finance income to $5.2 million from $4.8 million a year ago.
Strengthening fundamentals and a special dividend have made Lundin Gold stock overvalued, with an 11 times price-to-sales ratio and 26.8 times price-to-earnings ratio. This is higher than Barrick Gold’s 3.6 times and 18 times, respectively.
Does the stock have more upside?
Despite high valuations, Lundin Gold stock can grow if the gold price continues to rise. The price increase will bring in windfall gains. However, it is better to wait for a correction to buy the stock. If you already own it, consider holding it as the tariff situation remains escalated.
