New York, United States — 18 October 2012 – AngloGold Ashanti Limited  and Gold Fields Limited, the world’s third- and fourth-largest producers of gold, may have their ratings cut to junk, Standard & Poor’s said, as strikes halted about half of South Africa’s output.

Bloomberg News quotes the company as saying in a statement that business risks had increased in light of continuing strike action in South Africa and the possible implications of increasing social tensions for the mining industry. S&P has revised its outlook on Anglo American Plc’s rating to negative from stable.

Stoppages have halted gold, platinum, chrome and iron-ore mines in the country since Lonmin plc  awarded workers pay increases of 11 to 22% last month to end a six- week unauthorised strike in which about 44 people were killed, including 34 shot by police.

S&P last week lowered South Africa’s sovereign rating one step to BBB, in line with Brazil, Russia and Mexico, “to reflect the deterioration in the social and economic environment.”

AngloGold’s dollar-denominated bonds due in May 2022 erased gains, with the yield rising two basis points to 4.91% in London. Gold Fields’ dollar debt maturing in October 2020 pared earlier increases with the yield little changed fromTuesday’s close at 4.91%.

S&P rates both AngloGold and Gold Fields BBB-, its lowest investment-grade rating.
Placing Gold Fields on watch for possible downgrade also reflects “the rapid rise in Gold Fields’s unit cash cost, which we already consider to be comparatively high,” S&P said. “The cash cost could increase further in the event of wage rises as part of the strike resolution, or general inflationary pressure. AngloGold’s cash costs could also climb,” it said.

AngloGold produces about a third of its output in South Africa, while mines in the continent’s biggest economy account for about half of Gold Fields’ production.

S&P revised its outlook on Anglo American as the company generates more than half of its earnings before interest, tax, depreciation and amortization in South Africa, it said in a statement. Strikes have halted about eight of Anglo American Platinum’s mines and the company fired 12,000 workers on 5 October. A stoppage at the Sishen mine, a unit of Anglo’s Kumba Iron Ore, ended this week when police removed workers that had illegally occupied the site and seized equipment.

At least 160,000oz of output have been lost through the wave of strikes in South Africa. Gold Fields said the stoppages had cost 65,000oz so far, while AngloGold said it was losing 30,000 to 32,000oz a week. Harmony Gold Mining Company’s Kusasalethu mine is losing up to 800oz a day, the company said.

Source: Bloomberg News. For more information, click here.