$ 1 billion of rated debt affected
London, 13 May 2014 -- Moody's Investors Service has today affirmed the corporate family rating
(CFR) and probability of default ratings (PDR) of Gold Fields Limited
(Gold Fields) at Ba1 and Ba1-PD. Concurrently, Moody's
has affirmed the Ba1 rating assigned to the $1 billion senior unsecured
notes due 07 October 2020 issued by Gold Fields Orogen Holding (BVI) Limited
guaranteed by Gold Fields. The outlook on all the ratings remains
negative.
"We recognise the significant inroads made in aligning Gold Fields'
cost profile to accommodate the lower gold price environment",
says Douglas Rowlings, an Analyst at Moody's and lead analyst for
Gold Fields. "However, we still see uncertainty in
execution on production and cost targets for Gold Fields' South
Deep mine along with the outcome of a US SEC Probe into a Black Economic
Empowerment transaction associated with the mine."
RATINGS RATIONALE
RATIONALE FOR AFFIRMATION OF Ba1 CFR
The Ba1 rating reflects a range of successful initiatives to rightsize
the company to accommodate a $1,200/oz to $1,300/oz
gold price environment. Moody's also believes the company
has additional levers they can employ should the gold price be sustained
at levels modestly below this range. Furthermore Gold Fields'
priority to generate a group free cash flow (FCF) of around 15%
after all expenses including taxes at a long-term planning gold
price of $1300/oz will support management's intent to reduce
its debt load. Gold Fields' revised mining plan has largely
desensitised its operations to moderate volatility in the gold price,
with a 10% movement either side of $1300/oz having very
little impact on its reserve base. In our opinion, these
considerations, along with a robust liquidity profile have enhanced
the company's ability to withstand both a lower and volatile gold price.
The quick response by Gold Fields' management to implement a range of
remedial actions brought its All in Sustaining Costs* (AiSC) down
to $1066/oz in Q12014, from $1572/oz in Q22013.
The reduction in Gold Fields' cost base was achieved mainly through
(1) a 10% reduction in its global workforce (including contractors);
(2) rationalisation and prioritisation of capital expenditure; (3)
disbandment of its Growth and International Projects unit; and (4)
cessation of marginal mining and near-mine growth projects among
many other cumulative measures to combat costs.
Gold Fields' leverage remains at elevated levels of around 2.0x
Moody's-adjusted net debt to EBITDA (Earnings Before Interest
Tax Depreciation and Amortisation). Leverage is expected to trend
downwards as cost savings and Yilgarn mine production (Australia) feed
through to EBITDA over a fully captured 12 month reporting period.
Annualising Q12014 (historically a lower production quarter for Gold Fields)
Moody's-adjusted net debt to EBITDA results in leverage of
1.8x, which Moody's view as more reflective of Gold
Fields' leverage and which would probably be lower factoring in
better production for the rest of the year. Moody's recognises
though that net debt/EBITDA as defined by Gold Fields' facilities
agreement was 1.64x at 31 December 2013 against its 2.5x
financial covenant, offering 52% of headroom and allowing
for $904 million of incremental debt addition (assuming constant
EBITDA) or $389 million less EBITDA generation (assuming constant
net debt).
Execution on Gold Fields' revised ramp up plan for South Deep will
remain critical for the company. Management is committed to positioning
the mine to achieve break-even cash flow by the end of 2014 or
early 2015. South Deep is a key mine for Gold Fields' future
production profile, accounting for 73% of mineral reserves.
In the past, Gold Fields has had challenges in meeting its production
and cost targets for production ramp up of the mine. The mine still
faces challenges and Moody's will continue to monitor management's
ability to execute on the intended mine plan and assess the ramifications
of any deviation to this for Gold Fields' liquidity profile and
credit metrics, which could come under pressure.
The potential ramifications of an adverse outcome of the US SEC's
and the South African Directorate for Priority Crime Investigation's Black
Economic Empowerment (BEE) enquiry into South Deep mining licence award
presents uncertainty for Gold Fields. Actual or alleged breach
or breaches of relevant laws (including South African anti-bribery
and corruption legislation or the U.S. Foreign Corrupt Practices
Act of 1977) under any circumstances, may lead to regulatory and
civil fines, litigation, public and private censure,
loss of operating licenses or permits and could negatively affect BEE
status. Moody's would monitor how any adverse outcome could
affect Gold Fields' ability to operate its South Deep mine,
given its importance for the company. Gold Fields is also currently
subject to a class action silicosis law suit relating to some of its legacy
South African mines, along with aboriginal heritage claims on some
of St Ives mine in Australia's tenements, where the implications
for the company create further uncertainty.
The Ba1 rating (LGD3; 48%) on the $1 billion senior
unsecured notes due 07 October 2020 issued by Gold Fields Orogen Holding
(BVI) Limited and guaranteed by Gold Fields reflects their ranking alongside
Gold Fields other senior unsecured indebtedness, namely its (1)
$1 440 billion term loan and revolving credit facility; and
(2) ZAR2.5 billion revolving credit facility. Gold Fields'
La Cima $200 million non-revolving senior secured term loan
and Ghanaian $70 million senior secured revolving credit facility
have no recourse to the rest of the Gold Fields, only to these operations
themselves.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects Moody's expectation that Gold Fields will
continue to face challenges in delivering cost and production targets
under its revised South Deep mining plan. The outlook also factors
the uncertainty surrounding the ongoing the US SEC's and the South
African Directorate for Priority Crime Investigation's BEE enquiry into
South Deep mining licence, amongst other litigation that Gold Fields'
is currently subject to.
WHAT COULD CHANGE THE RATINGS DOWN/UP
Negative pressure could be exerted on Gold Fields' Ba1 rating if (1) the
company is unable to deliver further measures to align its operations
should the gold price be sustained below $1,200/oz;
or (2) an adverse evolution of execution on South Deep mine's production
and cost profile leading to leverage increasing above 2.0x and
cash flow from operations after dividends/debt falling below 30%
on a sustained basis. Negative pressure could also be exerted on
the company's rating following increased liquidity risk or an inability
to access cash flows from any of its important international operations
(namely Ghana, Australia and Peru).
Upward rating pressure is currently limited. This reflects Gold
Fields' production profile relative to its peers, i.e.
a gold producer of mid-tier scale with a moderate AiSC* portfolio
consisting of nine mines in four countries, and with a large portion
of the company's EBITDA generation still derived from Ghana. There
is also limited reserve life visibility with regards to its Yilgarn mines
in Australia, which reduces the certainty of Australia continuing
to be Gold Fields' biggest EBITDA contributor in the future.
As defined by the World Gold Council:
* All in Sustaining Costs - includes operating costs and sustaining
capital expenditure
The principal methodology used in these ratings was the Global Mining
Industry published in May 2009. Other methodologies used include
Loss Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
The Local Market analyst for this rating is Douglas Rowlings, 971-4-237-9543.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Gianmarco Migliavacca
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
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David Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms Gold Fields' ratings at Ba1; outlook remains negative
