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Global Credit Research - 17 Sep 2010
Johannesburg, September 17, 2010 -- Moody's Investors Service has today assigned a first-time
Baa3 local currency senior unsecured issuer rating to Gold Fields Limited
(Gold Fields). The rating outlook is stable.
"The Baa3 rating reflects Gold Fields' position as the world's
fourth-largest gold producer with an annual attributable production
of 3.5 Moz in fiscal year (FY) 2010, as well as the group's
very sizeable reserve base of 81 Moz in proved and probable ore reserves
and industry-leading reserve life in excess of 20 years as at 30
June 2009," explained Moody's Vice-President Senior Analyst,
"However, the group is also less diversified than some of its key
peers, with key producing assets (approximately 80% of reserves
and 50% of production) located in SA. In this context,
Moody's views positively Gold Fields' plans to reduce its
exposure to South Africa (SA) by growing its international presence,
so as to achieve a 60-40 production split between its international
and South African operations in the long term," added Mukherjee.
Gold Fields' rating is supported by solid operating margins,
despite a significant proportion of underground, deep-level
mines in its asset portfolio, which are labour-intensive
and costly to mine, as well as its ability to generate sizeable
cash flow to fund the significant capital expenditure requirements associated
with the ramp up of its key project, South Deep, and the maintenance
and improvement of its SA legacy assets. In this context,
Moody's takes comfort in Gold Fields' low financial gearing,
underpinned by a conservative financial policy framework, which
includes a strict policy of not engaging in gold hedging strategies and
a track record of using disposal proceeds to repay debt.
The rating also considers Gold Fields' operating environment,
including the inherent volatility in the gold price, given the fully
unhedged position of the group, and the risks arising from a potential
turn-around in the recent rally of the gold price, should
global economic conditions recover. Further, we note that
the mining industry has been subject to rising operating costs in recent
years, as ore reserves have become more expensive to recover while
price increases for most commonly used consumables have been running well
ahead of general inflation. The group's significant presence
in South Africa has left it exposed to heightened energy and wage inflationary
pressures, exacerbated by the strength of the South African rand
relative to the US dollar. In this context, Moody's
believes that Gold Fields' group-wide cost optimisation initiatives
should mitigate persistent inflationary pressures going forward.
The stable outlook for the rating is based on Moody's expectation
that Gold Fields will maintain healthy operating margins and a conservative
financial profile, allowing the group to remain within management's
financial target of Net debt/EBITDA of around 1.0x. The
outlook is equally predicated on the rating agency's assumption
that, going forward, Gold Fields will continue to maintain
its good liquidity, underpinned by the group's sizeable cash
balance, healthy cash generation, and availabilities under
medium-term committed facilities, in order to meet its ongoing
funding needs. In this context, Moody's notes the group's
efforts to diversify its sources of funding and extend the maturity profile
of its debt obligations.
Given Gold Fields limited geographic diversity, its single-product
business profile and its resultant sensitivity to the volatile gold price,
an upward movement in the rating is unlikely in the short-term.
However, longer-term, an upward movement may be possible
if the group successfully implements its cost optimisation programme and
achieves further geographic diversification of operations while maintaining
its strong cash flow generation in a lower gold price environment.
Downward pressure on the Baa3 rating could result from a deterioration
in the gold price and ultimately in the group's operating performance
and/or financial profile, which would lead to a sustainable increase
in the group's net debt/EBITDA ratio above the 2.0x range
and cash flow from operations after dividends to debt below 30%.
Downward pressure on Gold Field's senior unsecured rating could
also arise if the company increases materially its current level of secured
or priority debt raising subordination concerns.
The principal methodology used in rating Gold Fields Limited was Global
Mining Industry rating methodology published in May 2009. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Headquartered in Johannesburg (South Africa), Gold Fields is a global
gold mining company with sales of ZAR31.6 billion (US$4.2
billion) and an annual attributable production of 3.5 Moz of gold
in fiscal year 2010.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service South Africa (Pty) Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service South Africa (Pty) Ltd.
Moody's assigns Baa3 to Gold Fields Limited; outlook stable
2 Maude Street
No Related Data.
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