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Free Cash Flow Drivers for Barrick Gold Going Forward

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Mar. 2 2018, Updated 9:01 a.m. ET

Focus on free cash flow

Free cash flow (or FCF) generation helps long-term prospects for the business and helps generate shareholder value. It’s important for investors to track gold miners’ (GDX) FCF-generating ability. 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 generated FCF of $240 million in 4Q17, which marked the eleventh consecutive quarter of positive FCF. In 2017, Barrick’s FCF totaled $669 million. While even this FCF is significantly positive, it’s lower than the $1.51 billion FCF Barrick generated in 2016. Lower operating cash flows, along with higher capital expenditures, led to this decline in FCF. ABX’s FCF in 2017 was impacted by higher capital expenditure due to:

  • higher spending at Veladero
  • increases in mine site sustaining capital, especially at Barrick Nevada

The company stated that its FCF would allow it to increase its reinvestment in the future of the business.

Breakeven FCF

Barrick said that it’s progressing towards building a business that can generate FCF at a gold price of even $1,000 per ounce on a sustainable basis.

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

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