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Which Silver Miners Can Provide Free Cash Flow Upside Going Forward?

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Nov. 20 2020, Updated 3:51 p.m. ET

Free cash flow

The generation of FCF (free cash flow) is important for precious metal mining companies (RING) (SIL). It helps them invest in projects that can drive long-term value, optimize their financial leverage, and provide shareholder returns. Silver mining companies are constantly trying to reduce their costs and capital expenditures in order to generate FCF.

Hecla Mining’s (HL) San Sebastian has delivered a free cash flow of $48 million in 1H16. It beat the company’s expectations of $43 million FCF over two years with generating more cash in just six months. With increasing production, declining costs and lower capital requirements, the company is expected to generate significant FCF going forward. The company is expected to reinvest its FCF in exploration and other brownfield opportunities.

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Tahoe Resources (TAHO) made two acquisitions in the last 18 months. During the 2Q16 earnings call, the company highlighted a shift towards organic growth. Tahoe generated $60 million in FCF in 2Q16. Going forward as Tahoe completes the remaining capital expenditure on Shahuindo in 2017, and the production from mine ramps up, the FCF generation should accelerate.

Turning the corner

Pan American Silver Corp (PAAS) turned a corner with its 2Q16 results as it generated positive FCF. Going forward, as its brownfield projects get completed, the FCF generation should accelerate.

Coeur Mining’s (CDE) management is focused on generating significant FCF. The company was expecting to generate positive FCF in the second half of the year. However, it already generated positive FCF in 2Q16. Coeur acquired the Wharf mine from Goldcorp (GG) in April 2015. The company said it has already returned 60% of the acquisition cost, or ~$100 million, in 17 months. Coeur’s minimum gold royalty obligation to Franco-Nevada (FNV) also ended in the second half of 2016. Beginning in August 2016, Coeur will shift to more favorable terms under the renegotiated gold stream agreement. This is one of the other significant drivers of FCF generation.

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