Free cash flow
FCF (free cash flow) enables miners (GDX)(RING) to optimize their financial leverages, invest in projects supporting long-term value, and provide shareholder returns. In this context, we’ll look at the Newmont Mining’s (NEM) FCF generation in 2017 and its future capability to generate cash.
Significant FCF generation
In 4Q17, NEM’s FCF improved 54% YoY (year-over-year) to $445 million. Higher adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and favorable working capital offset higher capital expenditures during the quarter. The company achieved positive free cash flow of $1,484 million in 2017, up 88% year-over-year (or YoY). The company’s strong operational performance during the year contributed to this significant increase in FCF.
In 4Q16, Newmont Mining’s management revised its gold-linked dividend policy, which was expected to potentially double payout levels. Keeping with the new policy, the company declared dividends of $0.14 per share for 4Q17, which is 87% higher than the prior quarter and nearly three times higher than the prior-year quarter.
The company attributed this increase to its strong balance sheet and steady production profile. The dividend for 4Q17 translates into a dividend yield of ~1.5%. In addition to the dividend increase, the company also authorized a share repurchase program of up to $90 million.
Among its peers. Kinross Gold (KGC) has been generating decent FCFs since 2015. Its ability to generate FCF might come under pressure due to its limited growth options. Goldcorp (GG) has been lately generating negative FCF, but mainly due to the changes in working capital. Its projects and cost reduction should help generate significant FCF in 2018 and beyond. In 2017, Barrick Gold’s (ABX) FCF totaled $669 million. While even this total is significantly positive, it’s lower than the $1.51 billion FCF Barrick generated in 2016. Lower operating cash flows, along with higher capital expenditures, led to this decline in FCF.