Barrick Gold: What Now?

Barrick Gold (ABX) has reported a much anticipated quarter. In this column we review the highlights of the company’s performance, its strategic framework, as well as 2018 projections.

2017 key results

In 2017, Barrick generated operating cash flow of $2.07 billion, and free cash flow of $669 million. Cost of sales applicable to gold of $794 per ounce declined slightly compared to 2016, while all-in sustaining costs rose by approximately three percent to $750 per ounce, reflecting a planned increase in minesite sustaining capital expenditures. Gold cash cost fell by 3.7 percent, driven by a favorable sales mix, and the ongoing impact of initiatives to improve the productivity and efficiency of the company’s operations.

Lower free cash flow compared to 2016 was primarily the result of lower production and higher working capital, in part due to the temporary suspension of operations at the company’s Veladero mine in Argentina, and the concentrate export ban impacting Acacia Mining plc’s operations in Tanzania. Higher capital expenditures in 2017 also reflected planned investments in the company’s organic project pipeline, as the company invests more in the future of the company’s business.

In 2017, the company reduced the company’s total debt by $1.51 billion, or 19 percent, exceeding the company’s target of $1.45 billion. The company maintained the company’s focus on capital discipline, with total capital expenditures of $1.36 billion, near the low end of the company’s guidance range for the year.

The company is advancing a pipeline of high-confidence, organic projects with the potential to contribute more than one million ounces of annual production to Barrick, at costs well below the company’s current portfolio average. At the same time, the company returned more capital to shareholders, with a 50 percent increase in the company’s quarterly dividend, to $0.03 per share. Finally, the company forged a new strategic partnership with Shandong Gold at the Veladero mine, a landmark agreement with the potential to create significant long-term value for the company’s owners, as well as the company’s community and government partners in Argentina and beyond.