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Comparing Silver Miners’ Free Cash Flow

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Free cash flow

The generation of FCF (free cash flow) is important for precious metal mining companies (GDXJ) (SIL). It helps them invest in projects that can drive long-term value, optimize their financial leverage, and provide shareholder returns. Silver mining companies are constantly trying to reduce their costs in order to generate FCF.

Hecla Mining (HL) delivered free cash flow of $44.5 million in 2016, which represents growth of 243%. Its mine-level FCF was higher, at $160 million. Its San Sebastian mine has delivered higher-than-expected FCF. With increasing production, falling costs, and lower capital requirements, the company is expected to generate significant FCF going forward. The company also expects to reinvest its FCF in exploration and other brownfield opportunities.

Meanwhile, Tahoe Resources (TAHO) continues to generate FCF. During its 3Q16 results call, the company stated that, due to its strong financial position, it remains well positioned to finance growth internally. It also has one of the industry’s most attractive dividends.

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Turning the corner

Pan American Silver (PAAS) turned a corner with its 2Q16 results, generating positive FCF. The company expects to generate significant FCF following the completion of expansions at La Colorado and Dolores. The company had been using up excess cash previously to expand its mines.

In 4Q16, Coeur Mining’s (CDE) FCF was -$4.5 million, after generating positive FCF in the first two quarters of the year. The negative FCF in 4Q16 was mainly due to increased inventory at Palmarejo and the acceleration of interest paid due to early debt repayment. Coeur Mining believes that FCF will rise in 2017 due to its Wharf mine and more favorable terms under its renegotiated gold stream agreement with Franco-Nevada (FNV).

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