Focus on free cash flow generation
Barrick Gold (ABX) delivered a FCF (free cash flow) of $274 million in 2Q16, marking the fifth consecutive quarter of positive FCF. Barrick Gold’s management has defined value creation for shareholders in terms of FCF per share. The company intends to maximize FCF by allocating capital to opportunities that offer the highest returns. A large part of FCF growth for Barrick Gold in 2Q16 came from a reduction in sustaining capital expenditure. The company mentioned that part of this was due to timing, which could unwind in the second half of the year.
At current high gold prices, many gold miners are generating FCF, but Barrick Gold is targeting a break-even FCF even when gold prices are below $1,000 per ounce. During the earnings call, the company stated that it has reached a break-even level of $1,020 per ounce. It is working toward achieving $1,000 per ounce toward the end of the year.
Barrick Gold’s strategy is to prioritize cash flow over production. To achieve this goal, the company is trying to reduce overhead, working capital, and capital intensity through disciplined capital allocation. In terms of dividends, management mentioned it will continue to evaluate dividends quarterly, but right now the company’s focus is to “drive hard on debt.”
Barrick Gold’s peers
Other gold miners, including Eldorado Gold (EGO), AngloGold Ashanti (AU), Goldcorp (GG), Yamana Gold (AUY), and Newmont Mining (NEM), are also taking steps to increase their FCFs to weather this volatile gold price environment.
Investors can gain exposure to the gold sector by investing in the VanEck Vectors Gold Miners ETF (GDX), which invests in intermediate and senior gold producers. Goldcorp makes up 7.6% of its holdings. The SPDR Gold Shares ETF (GLD) tracks spot gold prices.