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It’s Raining Cash for Miners amid Resurgent Commodity Prices

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Previously in this series, we’ve looked at mining companies’ shipments and profits. Along with these metrics, one should also look at cash flows. In this article, we’ll look at miners’ 2Q17 cash flows.

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2Q17 cash flows

Freeport-McMoRan (FCX) generated free cash flows of $675.0 million in 2Q17, which took its 1H17 free cash flows to $1.1 billion. The company’s America operations generated free cash flows of $509.0 million in 2Q17 while Indonesia operations posted free cash flows of $292.0 million in the quarter.

Freeport expects to generate operating cash flows of $3.8 billion in fiscal 2017 if copper prices average $2.65 per pound in the second half of 2017. The company’s capex is expected to be $1.6 billion this year, which includes $700.0 million toward Grasberg underground operations. 

However, the Grasberg investments would depend on Freeport’s talks with the Indonesian government. The company has already slowed its investments in Indonesia and could take more measures if it is not able to secure long-term mining rights there.

Other miners

Other miners are benefiting from resurgent commodity prices (DBC) (GLNCY). Teck Resources (TECK) generated free cash flows of $992 million Canadian (~$788 million) in 2Q17. Southern Copper (SCCO) also generated positive free cash flows in 2Q17 despite its investments toward the Toquepala expansion.

Higher commodity prices are turning out to be a boon for miners who were grappling with higher financial leverage since the 2009 financial crisis. Over the last couple of years, most miners took steps including share issuance and dividend suspension to address their balance sheet issues.

Now, the key issue would be to determine how miners intend to allocate cash with relatively healthy balance sheets and strong commodity prices. We’ll discuss this in the next article.

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