RATINGS agency, Standard & Poor’s, on Monday affirmed its ratings grade for AngloGold Ashanti, citing a well-diversified asset base but it warned it could lower that rating by a notch within 18 months if there was increased pressure on mining firms in South Africa.
S&P downgraded Gold Fields’ credit ratings to junk status in mid-November, following closely on downgrades by the agency and its peer, Moody’s, of South Africa’s sovereign debt ratings because of illegal strikes in the mining sector, social tensions and regulatory uncertainty.
S&P on Monday said it had removed AngloGold from its "credit watch negative" list and the associated implication of a potential downgrading and affirmed its investment grade rating of its bonds. A downgrade would make the issuance of publicly traded debt, or bonds, more expensive.
"This is a ridiculously good news story for us. After Gold Fields was downgraded everyone was factoring in a downgrade for us too," said AngloGold head of investor relations Stewart Bailey.
S&P said its decision on AngloGold was based on the company’s diversified asset base spread across 11 countries and its fiscal prudence and protecting its balance sheet.
"Despite the fact AngloGold operates in riskier countries than its competitor Gold Fields, we give more weight to AngloGold’s diversified portfolio of mines," S&P said on Monday.
"The affirmation reflects our view of AngloGold’s strategy to diversify its geographic footprint and increase production, thereby reducing its exposure to South Africa. We continue to assess AngloGold’s business risk profile as ‘satisfactory’ notwithstanding increased country risk in South Africa," it said.
AngloGold lost about 300,000oz of gold worth about R4.5bn to an illegal strike that shut its seven mines in South Africa. It pared back its capital expenditure plans this year by $200m. It is conducting a review of its operations in South Africa and it will release the results in February.
S&P expects South Africa to contribute just 30% of AngloGold’s production in 2014, down from 37% in 2011.
"We’ve taken strong, decisive action to maintain our investment grade rating and preserve our financial stability and flexibility. And at the same time our strategy to improve the quality and diversity of our portfolio remains firmly on track," AngloGold CEO Mark Cutifani said South Africa.
"Although the strikes have ended with a manageable impact on AngloGold’s financials, we do not see the political tensions underlying the strikes being resolved in the short term," S&P said.
"We see a scenario in which the current political tensions translate into higher mining taxes, higher wages for miners or tighter regulations following the African National Congress’ conference in Mangaung this month, and sector wage negotiations scheduled in mid-2013," it said.
Enoch Godongwana, head of the ANC’s economic transformation committee, told Bloomberg last week, the ruling party was likely to raise taxes for the mining sector at the elective and policy-setting conference starting on 16 December, but the gold sector might be exempt because of the marginal nature of the business.