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Could Newmont’s Free Cash Flow Rise in the Coming Quarters?

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Free cash flow

Investors are usually interested in the company’s FCF (free cash flow) progression, as it enables miners (GDX)(RING) to optimize their financial leverage, invest in projects supporting long-term value, and provide shareholder returns. In this context, we’ll look at Newmont Mining’s (NEM) FCF generation in 2018 and its future capability to generate cash.

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FCF generation

Investors should not look at free cash flow on a quarterly basis, as it can be volatile due to working capital adjustments and capital expenditure irregularities. Newmont Mining generated just $178.0 million in FCF in the second quarter, a decline of 67.0% year-over-year (or YoY).

Lower operating cash flow and higher growth project investments led to this decline. Lower cash flow was mainly due to lower sales volumes and higher stockpile inventories as well as tax payments. Some of these factors, including inventories, are expected to reverse going forward, leading to a release of the FCF in the coming quarters.

Dividends increased

In the fourth quarter of 2016, Newmont Mining (NEM) revised its gold price-linked (GLD) dividend policy, which was expected to double payout levels. Keeping with the new policy, the company declared dividend per share of $0.14 in the first quarter and $0.14 in the second quarter, both of which are 87.0% higher than their comparative quarters last year.

The company attributed this increase to its strong balance sheet and steady production profile. The dividend for the second quarter translates into a dividend yield of ~1.8%.

Peer comparisons

While Kinross Gold (KGC) has generated decent FCF since 2015, its ability to generate FCF might come under pressure due to its limited growth options. 

Goldcorp (GG) has been generating negative FCF lately, mainly due to changes in its working capital. Its projects and cost reduction should help generate significant FCF in 2018 and beyond. 

In 2017, Barrick Gold’s (ABX) FCF totaled $669.0 million. While this total is positive, it’s lower than the $1.5 billion in FCF Barrick generated in 2016.

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