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Barrick Gold’s Free Cash Flow and Long-Term Prospects

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Apr. 26 2018, Updated 9:01 a.m. ET

Focus on free cash flow

Free cash flow (or FCF) generation helps long-term prospects for a business and helps generate shareholder value. It’s important for investors to track gold miners’ (GDX) ability to generate FCF. Barrick Gold (ABX) has a 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 Gold generated FCF of $181 million in 1Q18, which marked the 12th consecutive quarter of positive FCF. It generated $161 million in FCF in 1Q17. The increase in 1Q18 was mainly due to higher operating cash flows supported by higher gold prices and lower capital expenditures.

The company stated that in 2018, its priority is to position Barrick to increase its FCF per share over the long term from a portfolio of high-quality, long-life gold assets in the Americas. Its focus would be increasingly on Nevada and the Dominican Republic.

Barrick is planning to use its free cash flow and cash on hand to achieve its $5 billion debt target.

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

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