Barrick Gold Corporation (USA) (ABX) Mines Anchor Free Cash Flow Generation for the Long Term

December 22, 2014

Morningstar Analyst Kristoffer Inton likes Barrick Gold Corporation (USA) (ABX) because the company’s core mines all operate at low cost, but he does believe investors need to consider the company’s lack of a growth pipeline and shakeup in management.

Barrick Gold is the largest gold miner in the world by production. It’s anchored by five core mines that roughly constitute 60% of production. These mines all operate at low cost and are very large,” Inton said.

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Inton says that overall Barrick operates at attractive all-in sustaining costs, and the core mines operate at costs below the company average. He says that helps anchor the company’s free cash flow generation in the long term. However, Inton says investors need to keep an eye on a few things going on at the company.

“First, despite its low costs, Barrick doesn’t have a significant growth pipeline. This primarily has to do with the fact the company suspended its megaproject Pascua-Lama in the Andes Mountains,” Inton said. “Without that project, Barrick’s growth pipeline is not as promising as it once was.”

“Second, senior leadership has changed a lot this year. John Thornton was appointed as Chairman, and he appears to have full control of Barrick’s strategy…Although we think Thornton controls Barrick’s strategy, we’re still waiting to see what that strategy is,” Inton added.