Is There an Upside to Coeur’s Free Cash Flow Going Forward?



Free cash flow generation

Coeur Mining’s (CDE) management is focused on generating significant FCF (free cash flow). The company was expecting to generate positive FCF in the second half of 2016. But it saw positive FCF in 2Q16. The company attributed higher silver and gold prices as well as steadily improving cost performance for this surplus of cash.

In this part of the series, we’ll look at some factors that could lead to further FCF generation for the company.

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FCF drivers

The main drivers that could push Coeur’s FCF higher going forward are the following:

  • Coeur acquired the Wharf mine from Goldcorp (GG) in April 2015. Coeur said it has already returned 60.0% of the acquisition cost, or ~$100.0 million, in 17 months. It remains on track for a successful year, which should help Coeur generate FCF going forward.
  • Coeur’s minimum gold royalty obligation to Franco-Nevada (FNV) ended in the second half of 2016. In August 2016, Coeur was expected to shift to more favorable terms under the renegotiated gold stream agreement, another significant driver of FCF generation.

Analysts are expecting Coeur to deliver FCF of $71.8 million in 2016, which should rise to $157.0 million and $148.0 million in 2017 and 2018, respectively. That’s in line with management’s expectations that the company will generate significant FCF in 2017.

Coeur’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, but it’s turning FCF-positive.


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