The South Africa-based company, Harmony Gold, is having problems securing ongoing funding after using up more than $1 billion U.S. Its latest quarterly report shows that the company is grappling to produce free cash flow.

QUESTIONS:

1. What is free cash flow and why is this a worry for the company?
2. With respect to free cash flow, why was it a good sign to analysts that Harmony paid its first dividend in five years on September 21, 2009?
3. Explain each of the following in terms of helping or hurting Harmony’s free cash flow position:
   1. Cash raised from selling residual shares in Gold Fields, after an earlier bid for the company failed.
   2. Incremental cash increases earned from the rising price of gold sales
   3. Significant projects to replace aging assets used in the mining process

SOURCE: Sergeant, B. “For Harmony Gold, Free Cash Flow Remains Elusive,” Mineweb – Gold News (Retrievable online at http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=91685&sn=Detail)