Gold Fields CEO Nick Holland. Picture: MARTIN RHODES
Gold Fields CEO Nick Holland. Picture: MARTIN RHODES

GOLD Fields, the largest producer of gold in South Africa, was downgraded on Thursday by international ratings agency Standard & Poor’s (S&P).

"We believe that South African gold miner Gold Fields faces increased country risk in light of increasing social and political tensions," S&P said.

Gold Fields was downgraded to BB+/B with a stable outlook, from BBB-/A-3 for its long- and short-term credit.

"We have revised downward our assessment of Gold Fields’ business risk profile to ‘fair’ from ‘satisfactory’ to reflect the increase in country risk in South Africa, and the company’s higher unit cash costs than peers," said S&P.

The stable outlook reflected S&P’s opinion that Gold Fields’ financial risk profile would continue to be robust, benefiting from healthy gold prices, modest leverage, strong liquidity, and its conservative financial policy, it said.

"This reflects our opinion that South African country risk has increased for Gold Fields," it said.

Gold Fields’ cost of producing an ounce of gold has increased faster compared to its peers in recent years.

It cost Gold Fields $767 to produce an ounce of gold last year, compared with the industry average of between $600 and $650 per ounce.

For the second quarter of 2012, the cost for Gold Fields had increased to $855 per ounce.

These risks would not lessen in the short term, with Gold Fields’ financial risk profile assessed as intermediate. Its competitive position could weaken further if competitors started to produce gold from new mines within the next three years.

"We do not see any upward rating potential at this stage, given the company’s weak competitive position and our view of its higher country risk than most investment-grade peers," S&P said.

Gold Fields said last month wildcat strikes in the platinum, gold, iron ore and chrome sectors since August were affecting production. It warned huge restructurings of gold mines were fast becoming a likely prospect.

"The ongoing unlawful strike action in South Africa is of concern and will, even if resolved in the near term, increase the likelihood of major restructuring in the South African gold mining industry, including at Gold Fields," it said.

Gold Fields expected to generate 810,000oz in the three months to end September, compared with 900,000oz in the same period a year earlier. Output for the period was down on the 862,000oz of the June quarter.

Costs would rise because of the reduced production.

Sapa, with Allan Seccombe