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Free Cash Flow Catalysts for Gold Miners in 2017 and Beyond

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Free cash flow

The generation of FCF (free cash flow) is important for gold mining companies (SGDM) (GDX). This excess cash helps miners optimize their financial leverage, invest in projects that can drive long-term value, and provide shareholder returns. Among other things, miners’ cost positions determine the amount of excess cash generated.

Barrick Gold and Goldcorp (GG) have favorable positions on the global gold industry cost curve. Let’s see which companies can generate significant FCF in the coming quarters and years.

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Consistently delivering FCF

Barrick Gold’s (ABX) FCF was 84% lower year-over-year (or YoY) in 2Q17 at $43 million. The decline was mainly due to the higher capital expenditure. Investors should look at FCF on an annual basis rather than on a quarterly basis, as there are many irregularities regarding working capital and capex during the year. Barrick’s FCF generation capacity remains strong, and the company is targeting a break-even FCF at gold prices of $1,000 per ounce.

Newmont Mining’s (NEM) FCF in 2Q17 was impressive at $346 million compared to $199 million in 1Q17. This positive FCF for 2Q17 is NEM’s fifth consecutive positive FCF quarter.

FCF generation

Kinross Gold (KGC) generated adjusted operating cash flow of $231 million in 2Q17, a rise of 23.0% year-over-year. The company’s FCF was negative during the quarter, which was due to higher capex. Along with its available liquidity, its FCF should be enough to fund the company’s operations, near-term capital expenditures, and exploration activities.

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