Free cash flow
The generation of FCF (free cash flow) is important for gold mining companies (RING) (GDX) because it helps them invest in projects that can drive long-term value, optimize financial leverage, and provide shareholder returns. Gold mining companies are constantly trying to reduce costs and capital expenditures in order to generate FCF.
Now let’s examine how Yamana Gold (AUY) was able to generate cash in this market environment in 3Q16.
Significant FCF generation
Yamana generated net FCF of $78 million in 3Q16, which is a gain of $70 million as compared to the same period last year. This gain also brings the FCF for the first nine months to over $155 million, which is up $177 million from the same period of 2015. The cash flow for the company continues to increase, which will support its efforts toward debt reduction.
Further FCF acceleration
As the planned production increases start delivering over the rest of the year and beyond, the company expects further increases in FCF, which should be instrumental in strengthening its balance sheet and reducing net debt.
Meanwhile, Kinross Gold (KGC) has also been generating decent FCFs as of 2015, but its ability to generate FCF is expected to come under pressure going forward due to limited growth options. Newmont Mining (NEM) generated positive FCF of $240 million in 3Q16, which represents a rise of 51% as compared to the same period last year. Barrick Gold (ABX), in particular, is generating significant FCF due to lower costs.