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.
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.