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Analyzing Barrick Gold’s Free Cash Flow Upside in 2019

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Free cash flow

Since generating FCF (free cash flow) creates shareholder value and helps a business’s long-term prospects, it’s important for investors to track gold miners’ (GDX) abilities to generate FCF.

Barrick Gold (GOLD) has a strategy of value over volume, which prioritizes profitable production. The company defines value creation for shareholders in terms of the FCF per share.

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Drivers

Barrick Gold’s FCF was $37 million in the fourth quarter—85% lower YoY (year-over-year). A lower operating cash flow and higher capital expenditure led to the decline. In 2018, the FCF was $365 million—down 45% YoY.

In 2019, Barrick Gold will focus on improving productivity, driving down operating costs, and reducing working capital. As a result, the company’s FCF should improve going forward.

Higher FCF generation along with proceeds from divestitures helped the company pay down a significant amount of debt over the past two years.

Determinants

Investors should not give much attention to the FCF on a sequential basis due to irregularities in the distribution of cash flows and capex. Barrick Gold’s future FCF should remain supported. The company has maintained its cost and production guidance.

Gold and other precious metals prices could play a large part in determining Barrick Gold and its peers’ future cash generation capabilities.

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

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