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Could Gold Miners Improve Their Free Cash Flow in 4Q16?

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Free cash flow

Investors usually look at mining companies’ (GDX) (GDXJ) ability to generate FCF (free cash flow) in a volatile metal price environment. In this part of our series, we’ll see what analysts are projecting regarding FCF for senior gold miners (GDX).

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Analysts’ estimates for FCF generation

Analysts estimate that Barrick Gold (ABX) will have FCF of ~$1.4 billion in 2016. Barrick generated $471 million in FCF in 2015. Higher gold prices and Barrick’s focus on reducing its unit costs should help it to achieve significant positive FCF. Barrick Gold is targeting a break-even FCF despite gold prices being below $1,000 per ounce.

Newmont Mining (NEM) generated FCF of $756 million in 2015, more than double that of 2014. Most of this rise was due to cost and productivity improvements. Analysts project FCF of $1.6 billion and $1.2 billion for NEM in 2016 and 2017, respectively.

Goldcorp and Kinross

Goldcorp (GG) was not able to generate significant FCF in 2016, mainly due to a buildup of working capital. Analysts expect FCF of $313 million for 2016.

Kinross Gold (KGC) generated FCF of $222 million in 2015. Its management has guided for a 20% fall in overhead costs YoY (year-over-year) to $165 million in 2016. Along with lower costs and higher gold prices, lower overhead costs should help KGC achieve significant FCF going forward. Analysts project FCF of $304 million for the company in 2016.

Yamana and Agnico Eagle

Yamana Gold (AUY) generated FCF of $78 million in 3Q16. The company has adopted several initiatives, including streaming transactions and forming strategic partnerships, to improve its ability to generate FCF. As its planned production increases start delivering, the company expects further increases in FCF, which should be instrumental in strengthening its balance sheet and reducing net debt. Analysts project FCF of $100 million for the company in 2016 and $85 million in 2017.

Agnico Eagle Mines (AEM) generated FCF of $166 million in 2015. For 2016, analysts project FCF of $344 million. In the next article, we’ll explore key expectations for Newmont Mining in 4Q16.

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