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The Drivers for Barrick’s Free Cash Flow Decline in 2017

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Dec. 4 2020, Updated 10:53 a.m. ET

Focus on free cash flow

Generating free cash flow (or FCF) is very important for gold miners (GDX), as it helps long-term prospects for the business and helps generate shareholder value. These miners are trying to maximize their FCFs. Barrick Gold (ABX) has a stated strategy of value over volume, which prioritizes profitable production.

The company has defined value creation for shareholders in terms of FCF per share.

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Drivers of the FCF decline

Barrick’s 3Q17 marked the tenth consecutive quarter of positive FCF. The company generated $225 million in FCF in 3Q17, which is 67% lower YoY (year-over-year). Year-to-date, the company has generated FCF of $429 million, which also implies a significant fall of 62% YoY. Lower operating cash flows, along with higher capital expenditures, led to this decline in FCF. ABX’s FCF in 3Q17 and year-to-date was impacted by higher capital expenditure due to:

  • higher spending at Veladero related to 4B and 5B of the leach pad expansion and equipment purchases
  • increases in mine site sustaining capital, especially at Barrick Nevada

Higher capital spending should pay off during the coming period for the company, which should be FCF-generative.

Breakeven FCF

The cash flow generation has allowed the company to reinvest back in the business. Barrick combined the FCF generated year-to-date with existing cash balances, including $960 million in proceeds from the sale of a 50% interest in Veladero mine to repay $1.5 billion in debt.

Barrick’s FCF breakeven for 3Q17 was $1,037 per ounce. It’s targeting a breakeven FCF, even as gold prices have reached $1,000 per ounce.

Notably, AngloGold Ashanti (AU), Eldorado Gold (EGO), Yamana Gold (AUY), Goldcorp (GG), and Newmont Mining (NEM) are also taking steps to increase FCF to weather the current volatile gold price environment.

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