NOTE: On March 19, 2013, the press release was revised as follows: In the first paragraph, first sentence, removed reference to “issuer rating” and added LGD3; 42% Loss Given Default (LGD) assessments at Gold Fields Orogen Holding (BVI) Limited. The sentence now reads as follows: “Moody's Investors Service has today downgraded the global scale rating of Gold Fields Limited to Ba1 from Baa3 and the senior unsecured rating of Gold
Fields Orogen Holding (BVI) Limited to Ba1 (LGD3; 42%) from Baa3.” Also added the following as the second sentence of the first paragraph: “Simultaneously, Moody's withdrew the Gold Fields Limited's Baa3 issuer rating and assigned a corporate family rating (CFR) and probability of default rating (PDR) of Ba1.” Added the methodology Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009 to the first paragraph of the Principal Methodology section. Revised release follows:
London, 06 December 2012 -- Moody's Investors Service has today downgraded the global scale rating of Gold Fields Limited to Ba1 from Baa3 and the senior unsecured rating of
Gold Fields Orogen Holding (BVI) Limited to Ba1 (LGD3; 42%) from Baa3. Simultaneously, Moody's withdrew the Gold Fields Limited's Baa3 issuer rating and assigned a corporate family rating (CFR) and probability of default rating (PDR) of Ba1. The
outlook on the ratings is negative. This rating action was prompted
by Gold Fields Limited's announcement (on 29 November 2012) that
it plans to unbundle its South African mining assets (the Kloof-Driefontein
Complex and Beatrix mines) into a newly formed entity, Sibanye Gold
Limited, to be finalised by mid February 2013. This action
concludes our review for downgrade initiated on 30 November 2012.
RATING RATIONALE
"Gold Fields Limited's planned unbundling of its two South
African mining assets (Kloof-Driefontein Complex and Beatrix) will
initially lead to an overall weaker credit profile after the transaction
is concluded, hence the one-notch downgrade to Ba1,"
says Gianmarco Migliavacca -- Vice President - Senior Analyst
and lead analyst for Gold Fields Limited. "The rationale
for the downgrade to Ba1 is driven by an overall weaker scale, geographic
diversification and liquidity profile. The downgrade also 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 which is
still in a ramp-up phase and is therefore reporting negative free
cash flow generation. At the same time, Gold Fields Limited's
Ba1 rating takes into account 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 such as: (1) productivity
losses due to labour unrest; and (2) higher-than-inflation
wage and electricity price increases" adds Mr Migliavacca.
The negative outlook assigned to Gold Fields Limited'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.
The rating assumes that the current guarantee structure, which,
according to management, will include the assets held by Sibanye
Gold Limited, will remain in place for the existing $1 billion
bond.
Detailed considerations for Gold Fields Limited's Ba1 rating:
REDUCED SCALE IN TERMS OF PRODUCTION, REVENUE AND EBITDA
Following the unbundling of its Kloof-Driefontein Complex and Beatrix
assets, Gold Fields Limited's new position will be the seventh
largest global gold producer with projected annual production of 2.0
million ounces (currently fourth-largest gold producer).
The number of mines it operates will drop to six (from eight currently),
and revenues and EBITDA will decrease by approximately 40% and
32%, respectively.
WEAKER GEOGRAPHIC DIVERSITY WITH INCREASED EXPOSURE TO GHANA
As a result of the unbundling, Gold Fields Limited's production
profile will be predominantly exposed to Ghana (38% of production),
followed by Australia (28%), South Africa (20%) and
Peru (14%). The current production profile is South Africa
(49% of production), followed by Ghana (24%),
Australia (18%) and Peru (9%).
Although Moody's recognises the risks of operating in South Africa,
the rating agency views Ghana as a riskier country for Gold Fields Limited's
mining operations than South Africa, where there has been a mining
charter governing gold mining companies, such as Gold Fields Limited,
since 2004 (later amended in 2010).
Moody's recently downgraded South Africa's sovereign rating
to Baa1/negative from A3, with the rating agency's view of
the institutional strength component having been lowered to "moderate"
from "high". However, if Ghana was rated by Moody's,
that country's sovereign rating and Moody's assessment of
the institutional strength component are likely to be weaker than the
rating agency's published assessments for South Africa. Therefore,
replacing South Africa's contribution for Ghana, while improving
factors such as the overall cost structure of Gold Fields Limited after
completion of the transaction, leads to our conclusion that overall
geographic diversification will weakens due to the higher perceived political
and economic risks in Ghana.
LOWER CASH COSTS EXPECTED TO IMPROVE MARGINS
Gold Fields Limited's unbundled assets, Kloof-Driefontein
Complex and Beatrix, are collectively known as "narrow vein
assets", while the remaining assets are collectively known
as "large ore body assets". The large ore body assets
that are predominantly open pit operations (or mechanised underground
operations) which also require a relatively smaller labour force,
have a lower cost-base than the unbundled narrow vein assets,
that are deep-level mining operations which require a significant
manual labour force for extraction. Moody's therefore recognises
that Gold Fields Limited's cash costs are expected to reduce to
$780/oz from $879/oz currently, and its EBITDA margin
would improve by around 500 basis points due to the unbundling of its
two older South African mines. The rating agency also expects EBITDA
margin to improve to 48.4% from 43.5% for
the 12 months ended 30 June 2012, according to Moody's standard
definitions, adjustments and calculations.
WEAKER SHORT-TERM CASH FLOW GENERATION AND LIQUIDITY PROFILE
Nevertheless, on completion of the transaction, Gold Fields
Limited will display weaker initial free cash flow generation, due
to the removal of two healthy cash-generative assets. Its
remaining mine in South Africa, South Deep, is still in ramp-up
phase and thus still reporting negative free cash flow due to its high
capital expenditure needs. However, based on current gold
price assumptions South Deep is forecast to break-even during 2013.
As a result of the proposed unbundling transaction, Gold Fields
Limited would also have a weaker liquidity profile in the near term,
as it will lose two of its cash-generative mining assets,
whilst retaining the South Deep mine in South Africa will still require
higher capital expenditure than the contribution it is making in terms
of cash flows. As South Deep builds up to full production,
we recognise that its free cash flow contribution could become significantly
positive as a result of the ramp-up stage being completed.
WHAT COULD CHANGE THE RATING UP/DOWN
Given the change in the company's geographic mix and more limited
scale, upward ratings pressure is currently limited at this stage.
The rating outlook, however, could be changed to stable if
(1) the higher reliance on Ghana does not prove to materially increase
the overall business risk profile of Gold Fields Limited; (2) the
completion of the South Deep project remains on track; and (3) the
overall group's EBITDA margins prove to sustainably improve due
to the unbundling transaction.
Further negative pressure could be exerted on Gold Fields Limited's
Ba1 rating as a result of the company's inability to cut costs and
projects in a (1) deteriorating gold price environment and/or (2) higher
cost environment, thus allowing leverage, as measured by Net
Debt /EBITDA, to increase above 2.0 times and cash flow from
operations after dividends/debt to fall below 30% on a sustained
basis. Negative pressure would also be exerted on the company's
rating due to increased liquidity risk or an inability to access cash
flows from any of its important international operations (namely Ghana,
Australia and Peru).
PRINCIPAL METHODOLOGY
The principal methodology used in rating Gold Fields Limited and Gold Fields Orogen Holding (BVI) Limited was the Global Mining Industry Methodology, 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.
Headquartered in Johannesburg, South Africa, Gold Fields Limited
is a global gold mining company with sales of ZAR49.5 billion (approximately
$5.9 billion) and annual attributable production of 3.47
million ounces for the 12 months ended 30 June 2012, making it the
fourth-largest producer globally. The group is 100%
publicly listed on the Johannesburg, New York, Dubai,
Zurich and the Brussels stock exchanges. The group operates eight
mines on three continents; three mines in South Africa, two
in Ghana, two in Australia and a gold/copper mine in Peru.
The local Market analyst for Gold Fields Limited and Gold Fields Orogen
Holding (BVI) Limited is Dion Bate, 27-11-217-5472.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant 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 relevant 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 relevant 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.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings 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.
Gold Fields Limited has received a Rating Assessment Service within the
last two years preceding the Credit Rating Action.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entities or their related third parties within
the two years preceding the credit rating action. Please see the
special report "Ancillary or other permissible services provided
to entities rated by MIS's EU credit rating agencies" on the
ratings disclosure page on our website www.moodys.com for
further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
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on our website www.moodys.com for further information.
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.
Gianmarco Migliavacca
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
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David G. Staples
MD - Corporate Finance
Corporate Finance Group
Telephone: 00971 4237 9536
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Moody's downgrades Gold Fields Limited to Ba1; negative outlook
