Gold Fields Seeks to Extend Loan Maturities: South Africa Credit

Gold Fields Ltd., the South African mining company that spun off most of its domestic operations this year, is seeking to lengthen loan maturities after cutting costs by almost 25 percent, the chief executive officer said.

“We’re looking to see if we can move the tenor of our debt out,” Nick Holland said on Nov. 20, referring to the loans. “You don’t want to have too much debt in chunky maturities. If you can try and spread your maturities out, you reduce the risk of major refinancings happening at the same time.”

Gold Fields has $2.1 billion of debt outstanding, including $750 million due in 2015 and a $1 billion bond maturing in October 2020, according to the company’s third-quarter results. Yields on the Johannesburg-based company’s dollar security have dropped 135 basis points since reaching a record 9.16 percent on Sept. 12. The average rate of emerging-market metals and mining companies’ dollar debt has declined 42 basis points in the period, JPMorgan Chase & Co. indexes show.

The producer, along with competitor AngloGold Ashanti Ltd., is seeking to adjust to a gold price that has tumbled 26 percent in 2013 and is on course for its first annual drop since 2000. Renegotiating loan maturities will give Gold Fields, which cut costs in the third quarter and has boosted output in Ghana and Australia, flexibility to cope with swings in the metal’s price, according to Dion Bate at Moody’s Investors Service.

Removes Risk

“Our view for all corporates is that a successful attempt to lengthen maturities removes refinancing risk so would be viewed positively,” he said by phone from Johannesburg. “If the bond market or capital-debt markets closed up, a company with a longer-dated credit profile is less at risk.”

Accounting for cash on its balance sheet, Gold Fields has net debt of about $1.7 billion, according to Holland. “One billion dollars of that matures in 2020,” he said. “That leaves $700 million and we’ll make sure that is spread over a reasonable time period in smaller chunks.”

The lower gold price, spurred by the U.S. Federal Reserve’s signal that it plans to taper its $85 billion-a-month asset-purchase program due to an improving economy, is putting pressure on producers’ margins and share prices. Gold Fields and AngloGold posted losses and suspended their dividends in the second quarter.

Stock Decreases

Shares in Barrick Gold Corp., the Toronto-based company that’s the world’s biggest producer, have dropped 54 percent this year, while AngloGold is 49 percent lower. Gold Fields has dropped 56 percent.

Holland has responded to the lower prices by trimming capital expenditure, exploration spending and increasing production, which reduces the cost per ounce of gold mined. So-called all-in sustaining costs were $1,089 an ounce in the third quarter, compared with $1,416 an ounce in the previous three months.

The rand, the currency in which Gold Fields pays costs at its sole South African operation, has depreciated 16 percent this year against the dollar, which gold producers receive for their metal. The drop is the biggest in 2013 among 16 major currencies tracked by Bloomberg. The rand gained 0.1 percent to 10.0885 per dollar at 11:51 a.m. in Johannesburg.

Cost Reductions

Holland’s strategy mirrors AngloGold’s cost-cutting plan that was announced Aug. 7. Yield on AngloGold’s $700 million of bonds due in April 2020 have fallen 275 basis points, or 2.75 percentage points, to 6.32 percent since then. AngloGold sold $1.25 billion of bonds maturing 2020 in July to lengthen the maturity of its debt profile.

While the yield on Gold Fields’ 2020 bond has fallen since the September high, it is still 297 basis points higher than when it was first sold in October 2010. That indicates investors are demanding more interest for lending to the company, which may push up borrowing costs when it comes to refinancing debt.

Refinancing at a higher rate may be viewed negatively “if the additional costs are material, putting a higher cost burden on operating cash flows to service the outstanding debt,” said Bate at Moody’s. The ratings company has a Ba1 assessment, one step below investment grade, on Gold Fields, with a negative outlook.

Gold for immediate delivery fell 0.6 percent yesterday to $1,236.59 an ounce, the lowest since July 5.

Renegotiating debt tenors “is a risk-management strategy to make sure we don’t have any big maturities happening any time soon,” Holland said.

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