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Miners Look at Avenues to Deploy Cash amid Strong Metal Prices

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Deploying cash

Previously in this series, we looked at copper miners’ shipments and profits. Along with these metrics, investors should also look at cash flows. In this article, we’ll look at miners’ 3Q17 cash flows.

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Free cash flows

Freeport-McMoRan (FCX) generated free cash flows of $875 million in 3Q17, taking its free cash flows in the first nine months of 2017 to almost $2.0 billion. The company has been using its organic cash flows to repay its debt. Freeport’s debt levels have fallen from their highs as can be seen in the graph above. Last year, Freeport raised cash by selling some of its assets and through an equity offering. However, this year, the company has managed to bring down its leverage ratios through its free cash flows. A stable financial position would enable Freeport to pursue growth projects in its America mines.

Share buybacks

Teck Resources (TECK) is returning 578 million Canadian dollars (~$452 million) to shareholders this year, which includes a mix of base dividend, supplement dividend, and a share buyback. This translates into a per-share yield of 3.7% based on Teck Resources’ November 15 closing price. Teck Resources’ stock has underperformed the broader mining space this year despite higher commodity prices (BHP). Last year, the company was among the biggest gainers in the metals and mining space.

Southern Copper (SCCO) generated free cash flows of $570 million in 3Q17. The company has generated free cash flows of $1.2 billion in the first nine months of 2017. Prior to 2017, Southern Copper generated negative free cash flows for six consecutive quarters on higher capital expenditure.

First Quantum (FM) generated negative free cash flows of $443 million in 3Q17. However, the company’s negative free cash flows could be attributed to its ongoing expansion projects.

In the next article, we’ll do a comparative analysis of mining companies’ leverage ratios.

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