Moody’s downgrades Gold Fields, gives negative outlook ratings on Ghana risks
London-based ratings agency, Moody’s today December 6, 2012 downgraded the global scale issuer rating of Gold Fields Limited and the senior unsecured rating of Gold Fields Orogen Holding (BVI) Limited to Ba1 from Baa3.
The miner’s negative outlook on the ratings is driven by its Ghana operations.
According to Moody’s, the downgrade was “prompted by Gold Fields Limited’s announcement (on November 29, 2012) that it plans to unbundle its South African mining assets (the Kloof-Driefontein Complex and Beatrix mines) into a newly formed entity, Sibanye Gold Limited, to be finalised by mid February 2013.”
The agency in a statement explains that the rationale for Gold Fields’ downgrade to Ba1 is driven by an overall weaker scale, geographic diversification and liquidity profile.
A senior analyst at Moody’s, Gianmarco Migliavacca, said the downgrade also reflects near-term deterioration of cash flow metrics, as the unbundled — more mature — assets contributed more positive free cash flow compared to the company’s South Deep mining project which is still in a ramp-up phase and is therefore reporting negative free cash flow generation.
Migliavacca added; “At the same time, Gold Fields Limited’s Ba1 rating takes into account the credit positive aspects of the transaction such as lowering the company’s cost base, thus contributing towards more sustainable higher operating margins and reducing exposure to South African mining industry risk factors such as: (1) productivity losses due to labour unrest; and (2) higher-than-inflation wage and electricity price increases.”
The Moody’s statement indicated that the negative outlook assigned to Gold Fields Limited’s ratings is primarily driven by the near-term deterioration of free cash flow and higher reliance of cash flows from its operations in Ghana in the short to medium term, until the South Deep project is complete and can contribute towards healthy positive free cash flows.
Following the unbundling of its Kloof-Driefontein Complex and Beatrix assets, Moody’s says Gold Fields’ new position will be the seventh largest global gold producer with projected annual production of 2.0 million ounces. The miner is currently the world’s fourth-largest gold producer.
And its number of mines will drop to six from eight, and revenues and EBITDA will decrease by approximately 40% and 32%, respectively, it added.
As a result of the unbundling, Gold Fields’ production profile will be predominantly exposed to Ghana (38% of production), followed by Australia (28%), South Africa (20%) and Peru (14%) as against the current production profile where South Africa has 49% of production, followed by Ghana (24%), Australia (18%) and Peru (9%).
Despite Moody’s recognition of Gold Fields’ operating risks in South Africa, the rating agency views Ghana as a “riskier country” for Gold Fields Limited’s mining operations than South Africa, where there has been a mining charter governing gold mining companies, such as Gold Fields Limited, since 2004 (later amended in 2010).
By Ekow Quandzie