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Why execution is key to Barrick’s share price going forward

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Dec. 4 2020, Updated 10:52 a.m. ET

Strong operational performance

Barrick Gold (ABX) continues to deliver operationally. Its production profile is more or less flat year-over-year for the next three years, but it’s delivering strongly on the cost-cutting front. This has led to a laudable reduction in all-in sustaining cost (or AISC) per ounce. Potential growth projects should also deliver production growth at lower AISC going forward.

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Focus on free cash flow

Barrick’s management believes that at current gold prices, the company should be free cash flow (or FCF) positive in 2015. Also, a 15% hurdle rate will drive improved returns in the future.

Lean and decentralized structure should also drive cost-cutting and better management in the future. Management’s renewed focus on FCF and returns is a positive.

Execution is the key

Barrick’s management has provided a tangible set of objectives in its 2014 results commentary. These objectives include the following:

  • net debt reduction of $3 billion in 2015
  • lean operating structure with G&A (general and administrative) cost savings of $30 million in 2015 and higher going forward
  • a hurdle rate of 15% return on invested capital (or ROIC) for new projects

These objectives would definitely bode well for Barrick’s (ABX) stock price. However, what remains to be seen is the execution of these objectives.

Barrick’s high financial leverage is a key investor concern. Resolving this could lead to significant rerating of Barrick stock. This should be positive for Barrick’s share price.

In other series, we’ll look at Newmont Mining’s (NEM) and Goldcorp’s (GG) results and see what their next catalysts are. ABX, NEM, and GG form 8.8%, 7.2%, and 10.3%, respectively, of the VanEck Vectors Gold Miners ETF (GDX). The SPDR Gold Trust ETF (GLD) provides exposure to physical gold spot price.

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