AngloGold Ashanti Ltd. (ANG) and Gold Fields Ltd. (GFI) may have their debt ratings cut to junk by Standard & Poor’s after most of their South African output was halted by strikes and as the risk of operating in the nation rises.
Business risks “increased in light of continuing strike action in South Africa and the possible implications of increasing social tensions for the mining industry,”S&P said in a statement yesterday. It also revised its outlook on Anglo American Plc (AAL)’s rating to negative from stable. AngloGold and Gold Fields are the world’s third- and fourth-largest producers of the metal respectively.
Stoppages have halted gold, platinum, chrome and iron-ore mines in the country since Lonmin Plc (LMI) awarded workers pay increases of 11 percent to 22 percent last month to end a six- week unauthorized strike in which about 44 people were killed, including 34 shot by police. All of AngloGold’s mines in the country have been halted since at least Sept. 25. Gold Fields’ largest mine, KDC, has had strikes since Aug. 29.
Yields on AngloGold’s dollar-denominated bonds due in May 2022 climbed five basis points to 5.01 percent, the highest on a closing basis since Sept. 18 by 11:39 a.m. in Johannesburg. Rates on Gold Fields’ dollar debt maturing in October 2020 rose four basis points to 4.97 percent, the highest since Sept. 14.
S&P rates both AngloGold and Gold Fields BBB-, its lowest investment-grade rating.
Placing Gold Fields on watch for possible downgrade also reflects “the rapid rise in Gold Fields’s unit cash cost, which we already consider to be comparatively high,” S&P said. “The cash cost could increase further in the event of wage rises as part of the strike resolution, or general inflationary pressure.” AngloGold’s cash costs could also climb, it said.
AngloGold produces about a third of its output in South Africa while mines in the continent’s biggest economy account for about half of Gold Fields’ production.
S&P revised its outlook on Anglo American as the company generates more than half of its earnings before interest, tax, depreciation and amortization in South Africa, it said in a statement. Strikes have halted about eight of Anglo American Platinum’s mines and the company fired 12,000 workers on Oct. 5. A stoppage at the Sishen mine, a unit of Anglo’s Kumba Iron Ore, ended this week when police removed workers that had illegally occupied the site and seized equipment.
At least 160,000 ounces of output have been lost through the wave of strikes in South Africa. Gold Fields on Oct. 16 said the stoppages have cost 65,000 ounces so far, while AngloGold said it’s losing 30,000 to 32,000 ounces a week. Harmony Gold Mining Co.’s Kusasalethu mine is losing about 20 kilograms (643 ounces) to 25 kilograms a day, the company said Oct. 4.
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