Nothing that Gold Fields' performance in the second half of 2008 has been satisfactory-underpinned by rising average gold prices and a weakening U.S. dollar/South African rand exchange rate, Standard & Poor's has assigned a long-term and short-term global corporate ratings of ‘BBB-/A-3' .
At the same time, S&P assigned ‘zaA/zaA-1' long-term and short-term South African national scale corporate credit ratings to Gold Fields.
Factors cited by Credit Analysts Alex Herbert and Andrey Nikolaev in support of the rating include the company status as the world's fourth-largest gold producer; an industry-leading long reserve life of over 20 years; and healthy profitability and cash flow generation, underpinned by strong average gold prices.
However, the analysts also pointed to constraining factors including inherent gold price and exchange-rate volatility, rising cash costs, and capital intensity. In addition, the group has quite narrow geographic diversification in our view, with about 80% of reserves and 60% of production from mines located in South Africa.
We note, however, that the company is expanding production internationally in Australia, Ghana and Peru, the analysts said.
We also view operational risks as being quite high given the relatively few number of mines, but Gold Fields' historically weak safety record is improving and power supply challenges appear well managed, they added. However, debt maturities of about South African rand (ZAR) 3.4 billion, which fall due in May 2009, will in our opinion to be refined to mitigate pressure on liquidity.
The analysts consider Gold Fields' leverage and financial policy to be moderate, estimating adjusted dent at about ZAR10.9 billion.
The stable outlook reflects our opinion that Gold Fields will continue to report healthy cash flow generation, supported by ongoing quite high average gold prices and a weak exchange rate, and that it will maintain credit metrics in line with the rating.
While the analysts advise that Gold Fields capital expenditures should moderate, nonetheless, capex is likely to remain quite significant, as the company invests in developing its assets to increase production. On the basis of our base-case price assumption for gold of $750 per oz in 2009 and 2010, we anticipate that cash flows could be mostly consumed by such spending.
Nevertheless, S&P cautions that negative ratings could develop if Gold Fields is unexpectedly not successful in strengthening its liquidity profile, notably if near-term debt maturities due in May 2009 are not adequately refinanced.
Other adverse gold factors would be lower than anticipated gold prices, leading to weaker credit metrics.