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\t\t<\/span><\/p>\n <\/span><\/p>\n \n \t\t\u00a9 Thomson Reuters 2012 All rights reserved<\/p>\n","protected":false},"excerpt":{"rendered":" Overview — We believe that country risk for South African gold miner Gold Fields Ltd. (GFI) has increased in light of continuing strike action in South Africa and the possible implications of increasing social tensions for the mining industry. — We recently lowered our foreign currency rating on South Africa to ‘BBB’ from ‘BBB+’ to […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ngg_post_thumbnail":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[830,2370,183],"class_list":{"0":"post-15689","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-south-africa","7":"tag-news","8":"tag-reuters","9":"tag-south-africa-2","10":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/15689","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/comments?post=15689"}],"version-history":[{"count":0,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/15689\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/media?parent=15689"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/categories?post=15689"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/tags?post=15689"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Overview\n -- We believe that country risk for South African gold miner Gold Fields \nLtd. (GFI) has increased in light of continuing strike action in South Africa \nand the possible implications of increasing social tensions for the mining \nindustry.\n -- We recently lowered our foreign currency rating on South Africa to \n'BBB' from 'BBB+' to reflect the deterioration in the social and economic \nenvironment. The outlook remains negative.\n -- We are therefore placing on CreditWatch negative our 'BBB-' long-term \ncorporate credit and senior unsecured debt ratings on GFI.\n -- The CreditWatch placement reflects the possibility of us lowering the \nratings on GFI by one notch following our reassessment of GFI's business risk \nprofile in light of the increased country risk. \n\nRating Action\nOn Oct. 17, 2012, Standard Poor's Ratings Services placed on CreditWatch \nwith negative implications its 'BBB-' long-term corporate credit and senior \nunsecured debt ratings on South African gold miner Gold Fields Ltd. (GFI). At \nthe same time, we placed our 'A-3' short-term corporate credit rating on GFI \non CreditWatch negative.\n\nIn addition, we raised our long-term South Africa national scale rating on GFI \nto 'zaAA-' from 'zaA'. We affirmed our short-term South Africa national scale \nrating on GFI at 'zaA-1'. Finally, we placed our long- and short-term South \nAfrica national scale ratings on GFI on CreditWatch negative.\nRationale\nThe CreditWatch placement reflects an increase in country risk for GFI in \nlight of continuing strike action in South Africa, and the possible \nimplications of increasing social tensions for the mining industry. The \nlowering of our foreign currency rating on South Africa to 'BBB' from 'BBB+' \non Oct. 12, 2012, reflected this deterioration in the social and economic \nenvironment. (See \"South Africa FC Long-Term Rating Lowered To 'BBB'; LC \nRatings Lowered To 'A-\/A-2'; Outlook Remains Negative,\" published on \nRatingsDirect on the Global Credit Portal.) \n\nThe CreditWatch placement also reflects the rapid rise in GFI's unit cash \ncost, which we already consider to be comparatively high. The cash cost could \nincrease further in the event of wage rises as part of the strike resolution, \nor general inflationary pressure. At this stage, the steep weakening of the \nSouth African rand currently offsets this inflationary pressure in part. On \naverage in 2011, GFI's unit cash cost was $767 per ounce of gold, compared \nwith the industry average of $600-$650 per ounce. The unit cash cost in the \nsecond quarter of 2012 was $855 per ounce. \n\nWe are planning to reassess GFI's business risk profile in light of the \nincreased country risk and the possible further increase in the company's cash \ncost. As a result of our reassessment, we could revise GFI's business risk \nprofile downward to \"fair\" from \"satisfactory.\" The CreditWatch placement \nsignals a 50% probability that such a revision will trigger a one-notch \ndowngrade of GFI to 'BB+'. We plan to meet with management to ascertain \nwhether the company's modest financial policy can mitigate the increases in \ncountry risk and cash cost. This policy aims to maintain debt to EBITDA at \nless than 1x.\n\nThe current strikes caused GFI to idle two out of four of its South African \ngold mines in September 2012. On Oct. 16, GFI gave the striking workers a \nfinal ultimatum before dismissal, after which most workers in Beatrix returned \nto work. In our view, the ultimate risk to GFI is from miners disregarding a \nrecent agreement and starting strike action at GFI's South Deep gold mine, its \nflagship growth project in South Africa. This could result in GFI idling the \nSouth Deep mine and delaying its plan for expansion. GFI's South African \noperations contributed 36% of EBITDA and 49% of gold production in 2011. At \nthis stage, we do not have any visibility on how long the strikes will last \nand, more importantly, on the nature of any future agreements between GFI and \nthe unions.\n\nWe view country risk for GFI as materially higher than for its North American \npeers. We understand that the company's exposure to non-OECD countries is not \ngoing to change materially over the coming years, as the company develops the \nSouth Deep mine in South Africa and conducts feasibility studies at the \nChucapaca mine in Peru. On the other hand, the company has the ability to \nreduce country risk over the medium term by developing its Australian assets \nor its Arctic Platinum project in Finland. \n\nFinancially speaking, GFI has low leverage and we forecast that profits and \ncash flows will remain strong, supported by prevailing high gold prices in the \ncontext of quantitative easing and global economic uncertainty. \n\nUnder our base-case scenario, which assumes more prudent gold prices than \ncurrent prices, we believe that GFI's funds from operations (FFO) to debt will \nbe more than 40%-45% in 2013 and 2014, above the level that we consider \ncommensurate with an \"intermediate\" financial risk profile. Our base case \nincludes EBITDA of South African rand (ZAR) 15.0 billion in 2012, under the \nhypothetical assumption that the strikes spread to all four mines and last \nuntil the end of the year. This compares with EBITDA of ZAR20.0 billion in \n2011 and ZAR9.5 billion in the first half of 2012. We assume that EBITDA falls \nto ZAR13.0 billion in 2013. \n\nWe believe that GFI has some flexibility in terms of its future capital \nexpenditure (capex), as it has not yet approved or funded any of its projects \nexcept for South Deep. That said, under our base-case scenario, we used the \ncompany's long-term production target as the reference for future capex. In \nour view, GFI will need to invest an additional ZAR6 billion-ZAR7 billion a \nyear on top of maintenance capex of about ZAR5.0 billion-ZAR6.0 billion in \norder to fund all its projects. If approved, the higher level of capex would \ntranslate into substantial negative free operating cash flow in the coming \nyears. Consequently, we do not exclude the possibility of GFI's Standard \nPoor's-adjusted debt surging to more than ZAR21 billion in the coming years, \nfrom ZAR12 billion at the end of 2011. \n\nThe raising of the long-term South Africa national scale rating reflects our \nrecent adjustment to our mapping guidance for the South African national \ncredit rating scale.\n\nLiquidity\nWe assess GFI's liquidity as \"adequate\" under our criteria. The short-term \ncredit rating is 'A-3'. We estimate that the ratio of sources of liquidity to \nuses of liquidity will be comfortably above 1.2x in 2013 and in 2014. Our \nassessment is supported by small debt maturities until 2016; substantial \nheadroom under the current credit facilities; and the company's strategy to \nattract funds before initiating new projects. \n\nAs of June 30, 2012, GFI had the following sizable liquidity sources:\n -- ZAR6.7 billion of cash, excluding cash of ZAR1 billion that we \nconsider as tied to operations; \n -- Availability under committed credit lines of ZAR6.2 billion due 2016 \nand 2017; and\n -- Cash flow from operations under our base case of about ZAR17 billion \nby December 2013 and ZAR11 billion in 2014. \n\nWe project the following uses of liquidity as of June 30, 2012:\n -- Capex of about ZAR12.0 billion-ZAR13.0 billion per year to execute \nprojects in the pipeline. Assuming that spending on South Deep is not \ndiscretionary, the company may have some flexibility to reduce capex in 2014 \nto about ZAR9.5 billion if need be. \n -- ZAR1.7 billion of dividends per year, but we believe that the company \ncould reduce these if need be.\n\nIn our calculations, we did not factor in the company's ZAR1.5 billion fully \navailable revolving credit facilities that will mature in the coming six \nmonths. Those facilities, provided by domestic banks, are likely to be \nextended.\n\nThe company has substantial headroom under its maintenance covenants that \nspecify net debt to EBITDA of 2.5x and EBITDA to interest of 5x.\n\nCreditWatch \nWe aim to resolve the CreditWatch placement by the end of December, after \nmeeting with management and gaining further insight into the company's ability \nto reduce its exposure to country risk; to execute the South Deep project \naccording to current plans; and to maintain its internal policy of sustaining \ndebt to EBITDA at less than 1x. There is a 50% probability that we could \ndowngrade GFI to 'BB+' if we revise our assessment of its business risk \nprofile to \"fair\" from \"satisfactory.\"\n\nRelated Criteria And Research\nAll articles listed below are available on RatingsDirect on the Global Credit \nPortal, unless otherwise stated.\n -- Methodology: Business Risk\/Financial Risk Matrix Expanded, Sept. 18, \n2012\n -- Key Credit Factors: Methodology And Assumptions On Risks In The Mining \nIndustry, June 23, 2009\n -- Standard Poor's Revises Mapping Guidance For South Africa National \nCredit Rating Scale Following Sovereign Downgrade, Oct. 15, 2012\n -- South Africa FC Long-Term Rating Lowered To 'BBB'; LC Ratings Lowered \nTo 'A-\/A-2'; Outlook Remains Negative, Oct. 12, 2012\n -- High Prices Mask A Difficult Future For Gold Miners, Sept. 11, 2012\n -- Standard Poor's Revises Its Metals Price Assumptions For 2012, 2013, \nAnd Beyond, Jan. 16, 2012\n\nRatings List\nRatings Affirmed; CreditWatch\/Outlook Action\n To From\nGold Fields Ltd.\n Corporate Credit Rating BBB-\/Watch Neg\/A-3 BBB-\/Stable\/A-3\n\nGold Fields Orogen Holding (BVI) Ltd.\n Senior Unsecured Debt* BBB-\/Watch Neg BBB-\n\nUpgraded; CreditWatch\/Outlook Action; Ratings Affirmed\n To From\nGold Fields Ltd.\n Corporate Credit Rating\n South African National Scale zaAA-\/Watch Neg\/zaA-1 zaA\/--\/zaA-1\n\n*Guaranteed by Gold Fields Ltd.\n\n\nComplete ratings information is available to subscribers of RatingsDirect on \nthe Global Credit Portal at www.globalcreditportal.com. All ratings affected \nby this rating action can be found on Standard Poor's public Web site at \nwww.standardandpoors.com. Use the Ratings search box located in the left \ncolumn.<\/pre>\n