We are indebted again to precious metals analysis consultancy, Metals Focus, for bringing to our attention that the world’s top gold miners had moved into a combined Negative Cash Flow (NCF) position during the final quarter of last year. This is after three consecutive quarters where they had recorded positive Free Cash Flow (FCF) – that is after taking into account all elements of costs including capital expenditures.

For several years, Mineweb ran a campaign to push the gold mining sector to report FCF figures (South Africa’s Gold Fields was probably the only Tier 1 gold miner at the time which did) but eventually most have come round to so doing – helped by the relatively new reporting metric of All In Sustaining Costs (AISC), to which most big gold miners now subscribe, which gets close to reporting the FCF figure.

Prior to this mining companies, and gold miners in particular, were prone to reporting profits and capital expenditures as completely separate balance sheet items, although the true situation frequently saw profits being reported while company treasuries were being drained overall by high capex and led to the situation where borrowing, equity raising or asset disposals had proved to be necessary for the company to maintain its dividends.

The latest Metals Focus Peer Group Analysis report looks at the ten top gold mining companies which between them account for around a third of global new mined gold output. In Q4, this subset of gold miners fell back into reporting a combined negative cash flow of $270 million.

While lower gold prices were part of the equation (on average 6% quarter on quarter) and operating costs continued to show some improvement on the prior quarter, although only flat on those of a year earlier, what was apparent was that some other costs – notably corporate costs, were up by as much as 4% QOQ – and this despite continuing job cuts at corporate level.

Perhaps most significant though was a rise in capital spending – up 9% QOQ – and even more significantly perhaps is that this was mostly incurred in terms of sustaining capex – or stay-in-business capex as Metals Focus puts it. New project capex continues to be down and the consultancy notes that while in 2010-2013 sustaining capex accounted for less than 50% of total capital expenditures, in Q4 last year that figure had risen to around 70%. This confirms that the big gold miners are currently putting far less money into greenfields projects and major mine expansions as they struggle to keep overall expenditures down due to shareholder pressures to do so.

But what this signifies too, perhaps, is that the easy cost cutting improvements have already been made – and the rise in corporate costs could also suggest that the gold miners are beginning to drop the ball as far as cost cutting is concerned. The fact that sustaining capex costs are rising again – and quite steeply it seems – also has to be a worry for the miners and their shareholders. The gold price remains weak, and is seen by many observers as likely to stay depressed for the next several months at least – and perhaps fall back further, which does not bode well for FCF figures in the current half year. Perhaps the earnings recoveries seen last year are going to be difficult to build on in many cases.

Another factor pointed out by Metals Focus in its peer group analysis is the high level of net debt within the grouping, although this does not apply to all the companies surveyed. Cumulatively it stood at $27.5 billion at the end of 2014 and will take several years to pay off based on earnings before interest and tax – and if the gold price remains weak or falls further this could take much longer still. There are thus still considerable hurdles ahead to be overcome for even the biggest gold miners and it looks as though top tier gold miner FCF will remain weak or negative unless and until the gold price sees a significant turnaround.