Which Gold Miners Can Deliver Significant Free Cash Flow Upside?
Free cash flow
The generation of FCF (free cash flow) is important for gold mining companies (RING) (GDX). FCF helps these companies invest in projects that can drive long-term value, optimize their financial leverage, and provide shareholder returns. Gold mining companies are constantly trying to reduce their costs and capital expenditures in order to generate FCF.
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Barrick Gold and Goldcorp (GG) have favorable positions on the global gold industry cost curve. With the rise in gold prices and lower cost profiles, these companies should be able to generate significant FCF in the coming quarters and years.
Consistently delivering FCF
Barrick Gold (ABX) delivered FCF of $161 million in 1Q17—a figure that was slightly lower than the FCF of $181 million it generated in 1Q16. The lower FCF in 1Q17 was due to higher planned sustained capital expenditures and increased project spending at Barrick Nevada during the quarter.
Notably, 1Q17 marked the eighth consecutive quarter of positive FCF for Barrick Gold, which is targeting a breakeven FCF even as gold prices have reached $1,000 per ounce.
Newmont Mining (NEM) generated positive free cash flow of $199 million in 1Q17, compared to its FCF of -$123 million in 1Q16. The company’s solid operational performance, higher gold prices, and lower capital expenditures led to this impressive FCF generation growth.
Kinross Gold (KGC) generated $251 million in adjusted operating cash flow in 1Q17, which is a 21.0% rise year-over-year. Along with its available liquidity, its FCF should be enough to fund the company’s operations, near-term capital expenditures, and exploration activities.