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Is Positive Free Cash Flow on the Horizon for Iamgold?


Aug. 1 2016, Updated 1:04 p.m. ET

Free cash flow generation

Investors usually look at mining companies’ abilities to generate FCF (free cash flow) in a volatile precious metal price environment. Iamgold (IAG) has generated negative FCF for the last several years due to its higher cost structure and lower gold prices.

In addition to higher costs at its Rosebel and Essakane mines, the costly ramp-up of its Westwood mine is eating up its cash resources. In this part of the series, we’ll look at some factors that could lead to a positive FCF scenario for the company.

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FCF estimates

In 1Q16, IAG had FCF of -$18.3 million. In 2Q16, analysts are expecting FCF of -$3 million. The consensus estimate for 2016 also points to FCF of $9.7 million. Analysts are expecting Iamgold to turn FCF positive in 2017 and beyond. In 2017, analysts expect IAG to generate FCF of $81 million. In 2018, they expect FCF of $98 million.

The main drivers behind these forecasts are a higher gold price outlook, lower costs, and higher margins at Iamgold’s mines.

Iamgold’s negative FCF is in contrast to positive FCF for many of its peers (GDXJ). These peers include Yamana Gold (AUY), Agnico Eagle Mines (AEM), Goldcorp (GG), and Barrick Gold (ABX).

However, there are many companies such as Pan American Silver (PAAS) and Hecla Mining (HL) that, like IAG, are still generating negative FCF.


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