Hecla Mining Company (NYSE:HL)’s spending is almost matched with income, while Barrick Gold Corporation (USA) (NYSE:ABX) is spending more than it can afford.
2012
| Barrick | Hecla | |
|---|---|---|
| Net operating Cash Flow | $5,380 | $69 |
| Net Investing Cash Flow | -$6,500 | -$116 |
| Issuance of debt/ Stock | $600 | -$2 |
| Net Change in Cash | -$700 | -$108 |
Figures in $US millions
Hecla Mining Company (NYSE:HL) had a positive cash inflow of $68 million during 2009 and $179 million in 2010, the operating cash flow was impacted during 2011 by a $160 million change in working capital.
Barrick Gold Corporation (USA) (NYSE:ABX) had a positive cash inflow of $1.3 billion in 2009 and $1.45 billion in 2010,but compared to Hecla Mining Company (NYSE:HL) this was nowhere near as strong. In addition, Barrick Gold Corporation (USA) (NYSE:ABX) has been spending almost double its net income on capital spending and investing activities, which has led to increasing borrowing. In comparison, Helca’s spending has been kept under control and borrowing is negligible.
It’s not just Barrick and Hecla
This trend continues across the industry and further comparison between gold and silver miners shows the trend continuing. For example, Pan American Silver Corp. (USA) (NASDAQ:PAAS) and Newmont Mining Corp (NYSE:NEM):
2011
| Newmont | Pan American Silver | |
|---|---|---|
| Net operating Cash Flow | $3,580 | $355 |
| Net Investing Cash Flow | -$5,070 | -$175 |
| Issuance of debt/ Stock | – | – |
| Net Change in Cash | -$2,300 | $82 |
Figures in $US millions
Pan American Silver Corp. (USA) (NASDAQ:PAAS) had positive cash inflow during 2011 but Newmont Mining Corp (NYSE:NEM) spent much more than it could afford.
2012
| Newmont | Pan American Silver | |
|---|---|---|
| Net operating Cash Flow | $2,370 | $193 |
| Net Investing Cash Flow | -$3,260 | -$39 |
| Issuance of debt/ Stock | $1,320 | -$38 |
| Net Change in Cash | -$199 | $83 |
Figures in $US millions
For this example I have used Newmont Mining Corp (NYSE:NEM), as the company is facing writedowns as the company uses a price of $1,400 per ounce to value its gold assets.
Like Hecla Mining Company (NYSE:HL), Pan American Silver Corp. (USA) (NASDAQ:PAAS) has been conservative with its finances and not overspent to rapidly increase output like Newmont Mining Corp (NYSE:NEM). Indeed, Pan American Silver Corp. (USA) (NASDAQ:PAAS) has generated a positive cash flow for the last four years. What’s more, for the most part, this change in cash has been stronger than net income signifying the quality of the company’s earnings. Newmont Mining Corp (NYSE:NEM) on the other hand has not generated a positive cash flow, spending more than it can afford on CAPEX and investing activities – using debt to fill the gaps.
Foolish Summary
The price of gold and gold mining companies has been volatile over the past year or so. However, in comparison the price of silver has not been subjected to the same kind of push-pull momentum. Additionally, it would appear that silver miners have been much more conservative with their cash, saving to spend on CAPEX rather than borrowing.
All in all, the sun could be setting on gold miners, but silver miners are starting to look attractive.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Could it be Time to Dump Gold Miners in Favor of These Silver Producers? originally appeared on Fool.com is written by Rupert Hargreaves.
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