Johannesburg, South Africa — 10 December 2012 – Moody’s Investor Services has cut Gold Fields’ credit rating one notch to Ba1 from Baa3, dashing the group’s hopes that last week’s decision to spin off its South African mines into a separate firm called Sibanye Gold would make it appear less risky to international lenders.
BDlive reports that on Moody’s scale, a bond with Ba1 credit rating is “judged to have speculative elements and a significant credit risk” — commonly called "junk".
Gold Fields CEO Nick Holland announced last week that the miner was unbundling the Kloof-Driefontein complex and Beatrix mines to focus on growing its international portfolio, and to ramp up production at South Deep to 700,000oz of gold by 2016.
“The downgrade 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,” said Gianmarco Migliavacca, a senior analyst at Moody’s.
He added that the ratings agency had taken into account the positive aspects of the transaction such as a lower cost base that will contribute towards higher operating margins.
The Kloof-Driefontein complex and Beatrix were considered mature mines with a higher cost base, while Gold Fields’ remaining assets were considered “large ore-body assets”.
The assets were predominantly open-pit operations and would require a smaller labour force and have a lower cost base than the unbundled narrow-vein assets, which were deep-level mining operations that required mechanisation, Migliavacca said.
“By unbundling its South African portfolio, Gold Fields also reduced its exposure to risk factors such as productivity losses due to labour unrest, and higher-than-inflation wage and electricity price increases,” he added..
The ratings downgrade also took into consideration that Gold Fields’ guarantee of US$1billion “’ which includes the assets held by Sibanye “’ remains in place.
Last week, Barclays, Credit Suisse and JP Morgan underwrote a US$1.5 billion financing package to back Gold Fields’ unbundling of the Kloof-Driefontein complex and Beatrix.
Cash costs are expected to reduce to $780/oz from $879/oz, and Moody’s expects the margin on earnings before interest, tax, depreciation and amortisation to improve by about 500 basis points as a result of the unbundling, the agency said.
Source: BDlive. For more information, click here.