Insight
Gold majors’ capital allocation: buybacks, discipline and the growth question ahead
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Report summary
Gold's five majors — Agnico Eagle, AngloGold Ashanti, Barrick, Gold Fields and Newmont — are generating free cash flow on a scale that rivals the diversified miners, and they are choosing to hand much of it back. This report explains why. We show how the dilution and write-downs of the 2001-15 cycle reshaped every capital allocation framework in the sector, and how the buyback has become gold's de facto opportunity cost of capital — the hurdle every project, acquisition and consolidation must now clear. We quantify that hurdle: buyback IRRs of 4-8% at today's prices, and the gold price below which repurchases stop paying for themselves. We then set it against the constraint the sector cannot buy its way out of: short mine lives, thin project pipelines, and production falling by around 45% on current plans at two of the five. Buybacks cannot substitute production indefinitely.
Table of contents
- Executive Summary
- Gold's cash generation challenge: deploying unprecedented free cash flow
Tables and charts
This report includes the following images and tables:
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Major mining company share price performance past 10 years (2016 = 100)Free cash flow for 5 largest mining companies in each segment (US$ billion)Basic shares outstanding (indexed to 2001)
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Total free cash flow generation (US$ billion)Market implied gold price (US$/oz real flat)Dividend/Operating cash flow payout ratioBuyback returns by company (% IRR) at flat real gold price scenariosGold production outlook relative to target (consolidated gold production Moz p.a.)Longevity – weighted average mine lifeConcentration – top 4 assets % of pre-tax NPVExploration expenditure outlook (US$ million)Exploration expenditure benchmark
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What's included
This report contains:
