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Which Gold Miners Could See Free Cash Flow Upside in 2016 and Beyond?

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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.

Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM) 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.

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FCF generation

Barrick Gold (ABX) delivered FCF of $674.0 million in 3Q16 compared to $274.0 million in 2Q16. This is a higher FCF in just one quarter than the company generated in all of 2015. The third quarter also marked the sixth consecutive quarter of positive FCF, bringing the company’s FCF for the first nine months of 2016 to ~$1.1 billion. Barrick Gold is targeting a break-even FCF even when gold prices are below $1,000 per ounce.

Kinross Gold (KGC) generated $320.0 million in operating cash flow in 3Q16, which is a rise of more than 50.0% YoY (year-over-year). After capital expenditures, its FCF for the quarter was $112.0 million. Along with its available liquidity, this FCF should be enough to fund the company’s operations, near-term capital expenditures, and exploration activities.

Of the companies mentioned, only Goldcorp wasn’t able to generate positive FCF in the first half of 2016. This exception was mostly due to a normal seasonal working capital buildup.

Consistently delivering FCF

Yamana Gold (AUY) generated net FCF of $78 million in 3Q16, which is a gain of $70 million compared with the same period in 2015. This gain also brings the FCF for 9M16 to over $155 million, which is up $177 million from the same period in 2015. The cash flow for the company continues to increase, which will support its efforts toward debt reduction.

Newmont Mining (NEM) generated positive free cash flow of $240 million in 3Q16, which represents a rise of 51% compared to the same period in 2015. NEM’s management stated during its 3Q16 earnings call that it is revising its gold price–linked dividend policy. The new policy could potentially double the payout levels starting in 1Q17.

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