Four of the world's largest gold mining companies reported earnings that spectacular although the budget for the equipment also increases.

The world's four biggest (by production) primary gold miners have now reported preliminary numbers for 2010; Newmont has arguably produced the best overall numbers. On another tack, Barrick's awesome cash generating powers were on full view for 2010: for those rare investors prepared to look forward into the longer term, Barrick's outcome probably wins the contest.

Revenues at both Barrick and Newmont are assisted by sales of copper, a metal which turned in a singularly spectacular price performance across 2010. AngloGold Ashanti finally killed off its hedge book in October 2010, at costs running into billions of dollars spread across the past three years. Barrick wiped its hedge book out rapidly in 2009, also at a multi-billion dollar cost.


USD m 2010 2009 2008 2007
Operating cash flow 11,311 8,183 5,058 3,484
Capital expenditure -6,884 -6,007 -5,918 -4,860
Free cash flow 4,427 2,176 -860 -1,376
Net debt -4,953 -7,068 -8,554 -4,657
* Barrick, Newmont, AngloGold Ashanti, Gold Fields

Earlier this week, Barrick for the first time added free cash flow (simply operating cash flow, less capital expenditure) to its key statistics. An aggregation of the numbers for the four big gold diggers shows operating cash flow of USD 11.3bn for 2010, more than USD 3bn higher than the outcome for 2009, and well over double 2008's comparable number. (For insomniacs: BHP Billiton, the world's biggest diversified resources group, produced operating cash flow in 2010 of USD 24.7bn).

Aggregate capital expenditure for the top four gold miners in 2010 was USD 6.9bn (nearly half of that was from Barrick), rising inexorably as costs increase, but also indicating that the groups remain confident to invest in growth. Combined free cash flow for 2010 was USD 4.4bn, twice the outcome for 2009. Dividend payments have been rising, and the groups have been attending to balance sheet metrics. Net debt (including cash) fell sharply by end-2010 to USD 4.4bn, from a peak of USD 8.6bn two years previously.

For sheer cash generating power, Freeport-McMoRan is difficult to beat. The group operates the world's biggest gold mine, at the Grasberg copper-gold deposit. The stock is seen as a primary copper producer, and rated as such.

While the four big gold miners produced aggregate free cash flow of USD 4.4bn in 2010, Freeport-McMoRan by itself produced USD 4.8bn. Freeport-McMoRan benefits from operating big, established mine sites, along with attractive in-house brownfields opportunities.

Perhaps the major challenge for all miners is the demonstrable and alarming increase in capital expenditure, both for stay-in-business, and for new builds. Just as gold bullion prices have handily risen for a decade and boosted the headline fortunes of gold miners, so raw material, and other, costs have been rising in all directions.

At Barrick's Pascua-Lama gold-silver project on the Chile-Argentina border, pre-production capital is now expected to increase by 10-20% to USD 3.3-USD 3.6bn. Pressure on capital costs, says Barrick, "are primarily as a result of a stronger Chilean peso, labor, commodity and other input cost increases in both countries and higher inflation particularly in Argentina".

At the Cerro Casale gold-copper project in Chile, Barrick has announced a review of capital costs. Early indications, say Barrick, which holds 75% of the project, suggest that the capital cost may be higher by about 20-25% from the previous estimate of USD 4.2 billion (100% basis), based on a feasibility study completed in 2009. The major culprits in the revision: a stronger Chilean peso, higher labour, commodity and other input costs.

USD m 2010 2009 2008 2007
Operating cash flow 3,167 2,947 1,293 663
Capital expenditure -1,402 -1,769 -1,870 -1,672
Free cash flow 1,765 1,178 -577 -1,009
Net debt -385 -1,594 -3,107 -1,707
Operating cash flow 4,783 2,899 2,254 1,732
Capital expenditure -3,323 -2,358 -1,776 -1,046
Free cash flow 1,460 541 478 686
Net debt -2,724 -3,771 -3,119 -941
AngloGold Ashanti
Operating cash flow 1,669 1,299 584 866
Capital expenditure -973 -1,019 -1,194 -1,015
Free cash flow 696 280 -610 -149
Net debt -1,255 -831 -1,358 -1,385
Gold Fields
Operating cash flow 1,692 1,038 927 223
Capital expenditure -1,186 -861 -1,078 -1,127
Free cash flow 506 177 -151 -904
Net debt -589 -872 -970 -624
Operating cash flow 6,237 4,397 3,370 6,225
Capital expenditure -1,412 -1,587 -2,708 -1,755
Free cash flow 4,825 2,810 662 4,470
Net debt -1,017 -3,690 -6,479 -5,585
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