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Which Gold Miners Could Generate Free Cash Flows in 2015?



Free cash flow generation

Gold miners have reduced their all-in sustaining costs (or AISC) significantly since 2013. So even at a gold price level of $1,200 per ounce, many of them are breaking even, and some of them are even making money. Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM) are some of those companies.

AISC, which include costs of servicing debt, were close to $1,206 per ounce, according to a 2015 survey by Gold Fields Mineral Services Ltd. (or GFMS). So not many miners will have the ability to generate free cash flow (or FCF) after paying off their debt obligations unless gold prices (GLD) (IAU) increase to more than $1,200 per ounce.

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Ability to generate free cash flow

Newmont Mining (NEM) reported FCF of $0.34 billion in 1Q15. It should be generating significant FCF at $1,200 per ounce levels. The company plans to use its FCF to repay debt obligations and return cash to shareholders.

Goldcorp (GG) was in the capital deployment stage until now. It generated -$374 million of FCF in 1Q15. With capex (capital expenditures) for its three new mines ending, Goldcorp should be able to generate some FCF in 2015, if gold prices don’t go any lower.

Barrick Gold (ABX) is applying strict capital allocation measures to increase shareholder returns. It set a return on invested capital hurdle rate of 15% for all new projects. All existing mines must also compete for capital. Barrick could be slightly FCF-positive in 2015 and going forward before any debt repayment.

Agnico Eagle Mines (AEM) generated FCF in 1Q15, which it used to pay down some of its debt. It forms 5.2% of the VanEck Vectors Gold Miners ETF (GDX).

Kinross Gold (KGC) should have adequate liquidity to service its debt obligations. But its FCF generation ability remains highly constrained due to lack of growth potential.

For senior mines, 2015 should be more or less FCF-neutral. Cost-cutting efforts, including divestitures and capital discipline, that are currently underway should show results in 2016 and 2017 when they could generate positive FCF.


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