What Boosted Newmont Mining’s Free Cash Flow in 2016?



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 their financial leverage, and provide shareholder returns. Gold mining companies are continually trying to reduce their costs and capital expenditures in order to generate FCF.

Now, let’s examine how Newmont Mining (NEM) was able to generate cash in this market environment.

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Significant FCF generation

Newmont Mining (NEM) generated positive free cash flow of $289 million in 4Q16 compared to FCF of -$138 million in 4Q15. This took the FCF for 2016 to $784 million, representing growth of 183% year-over-year (or YoY). Its FCF per share of $1.47 at the end of 2016 was higher than the sector average.

The company’s solid operational performance, along with higher gold prices, led to this impressive FCF generation growth.

Dividend upside

Newmont Mining’s (NEM) management stated during its 4Q16 earnings call that it is revising its gold price–linked dividend policy. The new policy could potentially double the payout levels starting in the first quarter of 2017. The company also doubled its dividend for the fourth quarter from $0.025 to $0.050.

During the 4Q16 call, Newmont Mining’s executive vice president and CFO, Nancy Buese, stated, “Our fourth quarter dividend doubled compared to the prior-year quarter, and we enhanced our dividend policy to improve shareholder returns at the higher gold prices beginning in 2017. We are confident in our ability to generate cash through the cycle, so we also increased the payout at lower gold prices.”

Meanwhile, Kinross Gold (KGC) has been generating decent FCFs since 2015, but its ability to generate free cash flow is expected to come under pressure due to limited growth options.

Yamana Gold’s (AUY) cash flow generation is expected to accelerate going forward as production starts in high-grade areas. Barrick Gold (ABX) is generating significant FCF due to its lower costs.

In the final article in this series, we’ll see what analysts have to say about NEM’s 2016 results.


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