Gold Fields Ltd. (GFI:US), the fourth-largest producer of the metal, had its credit ratings cut to junk by Moody’s Investor Service because of the initially negative effects of a plan to spin off some South African mines.
The unbundling “will initially lead to an overall weaker credit profile after the transaction is concluded,” Gianmarco Migliavacca, a Moody’s analyst, said in an e-mailed statement today. Moody’s cut the global scale issuer rating and senior unsecured rating of Gold Fields Orogen Holding (BVI) Ltd. to Ba1 from Baa3 and said the outlook was negative.
Gold Fields plans to separate a unit controlling the Kloof- Driefontein Complex, Africa’s largest gold operation, and the Beatrix mine, it said Nov. 29, naming the new company Sibanye Gold Ltd. The deep-level mines under Sibanye require a different management and strategy to those remaining within Gold Fields to maximize value to shareholders, the company said.
Gold Fields’ credit profile will initially be weaker as two cash-generative assets will be spun out to Sibanye, Moody’s said. The profile will recover once South Deep, a mine under development, begins generating cash, it said. Standard & Poor’s cut Gold Fields to junk on Nov. 15, saying the risk in South Africa increased as social and political tensions rose.
“The negative outlook assigned to Gold Fields Ltd. (GFI)’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,” Moody’s said.
Gold Fields pared a loss of as much as 2.8 percent to trade 1.3 percent lower at 100.50 rand by 11 a.m. in Johannesburg, where the company is based.
The rating also accounts for “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,” Moody’s said. Those include productivity losses because of labour unrest and higher-than-inflation wage and electricity price increases, Migliavacca said.
Gold Fields and larger rival AngloGold Ashanti Ltd. (ANG) had all of their South African mines halted in the third quarter as unauthorised strikes for higher pay spread across the country.
Following the unbundling of its Kloof-Driefontein complex and Beatrix assets, Gold Fields will be the seventh-largest gold producer with projected annual production of 2 million ounces a year, Moody’s said.
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