Which Gold Miners Could Surprise on the Upside on Free Cash Flow?



Free cash flow

FCF (free cash flow) generation is important for gold mining companies (SGDM) (GDX). This excess cash helps miners optimize their financial leverages, invest in projects that can drive long-term value, and provide shareholder returns.

The graph above shows the forward FCF yields of the four gold miners under our review. Barrick Gold (ABX) generated FCF of -$172.0 million in the second quarter, breaking its streak of 12 consecutive quarters of positive FCF. It had generated $43.0 million in FCF in the second quarter of 2017. Its negative FCF was driven by lower operating cash flows partially offset by lower capex.

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Consistently delivering FCF

Newmont Mining (NEM) generated just $178 million in FCF in the second quarter, a fall of 67% year-over-year. Lower operating cash flow and higher growth project investments led to this fall. Its reduced cash flow was mainly due to its lower sales volumes and higher stockpile inventories as well as tax payments. Some of these factors, such as inventories, should reverse going forward, leading to a release of the company’s FCF in the coming quarters.

FCF generation

Kinross Gold (KGC) has also been generating growth in its operating cash flow. The company plans to use these funds along with the proceeds from its noncore asset sales and other sources to pursue development opportunities. Its FCF is currently mostly negative due to higher capex.

Goldcorp’s (GG) FCF generation is currently negative but is expected to turn positive by the end of 2018, according to analysts’ consensus. Due to its lower capital intensity going forward, it’s expected to generate significant FCF.


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