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What Could Lead to a Free Cash Flow Upside for Coeur Mining?

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Nov. 21 2016, Updated 11:04 a.m. ET

FCF generation

Coeur Mining’s (CDE) management is focused on generating significant FCF (free cash flow). The company was expecting to generate positive FCF in 2H16. However, it already generated positive FCF in 2Q16.

In 3Q16, Coeur Mining increased its FCF 20% quarter-over-quarter to $15 million. This increase was mainly due to higher silver and gold prices and steadily improving cost performance.

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Drivers for FCF

Coeur Mining’s (CDE) management believes that its FCF will climb throughout the remainder of the year. Below are the main drivers that could drive its FCF higher going forward:

  • Coeur Mining acquired the Wharf mine from Goldcorp (GG) in February 2015. It has already contributed $44 million in FCF in the first nine months of the year, with 3Q16 contributing $20 million. It remains on track for a robust year, which should help Coeur Mining generate FCF going forward.
  • Coeur Mining’s minimum gold royalty obligation to Franco-Nevada (FNV) also ended in July 2016. Beginning in August 2016, CDE has shifted to more favorable terms under the renegotiated gold stream agreement. This is one of the other significant drivers of FCF generation.

Coeur Mining’s management expects the company to become a significant FCF generator in 2017.

Coeur Mining’s silver peer (SIL) Fresnillo (FNLPF) had positive FCF in 2015. Pan American Silver (PAAS), on the other hand, was FCF-negative. Unlike many of its peers, PAAS is going for growth capex (capital expenditure), which is leading to negative FCF.

Hecla Mining (HL) was FCF-negative in 2015, and it’s trying to turn FCF-positive.

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