Johannesburg - Gold Fields could experience an adverse credit rating adjustment if an investigation by the US Securities and Exchange Commission (SEC) into the potential irregularities of its black economic empowerment (BEE) transaction resulted in sanctions or imposition of penalties on the company, rating agency Moody’s Investors Service said on Friday.
Last Tuesday the mining group issued a statement acknowledging the SEC investigation of its BEE transaction relating to the granting of the mining licence for its South Deep operation, southwest of Johannesburg.
Gold Fields completed a R2.1 billion BEE deal in 2010 in which 10 percent of Newshelf 899 – its subsidiary that owns 100 percent of the South Deep gold mine – was sold to outside BEE shareholders.
Mail & Guardian reports last week pointed to ANC chairwoman Baleka Mbete as the beneficiary of this deal, which was central to the granting of a mining licence for the mine.
The mine’s total mining right area is 4 268ha.
Business Report’s sister publication, Saturday Star, reported that Agang SA leader Mamphela Ramphele confirmed that she was expecting to testify during the investigation as she chaired the board of Gold Fields before entering politics.
Moody’s said that at this early stage of the investigation, there would be no impact on Gold Fields’ Ba1 credit rating with a negative outlook as there was limited information for the agency to estimate reliably its potential outcome.
But it expected the SEC probe to trigger further investigations by South African authorities. Moody’s added that it could also affect Gold Fields’ agreement to acquire the Yilgarn South gold mine assets in Australia from Canadian group Barrick, which the JSE-listed company announced recently.
Gold Fields had an option to settle half of the $300 million (R3 billion) price in shares.
“A negative outcome would likely lower Gold Fields’ share price and could prompt the company to turn to its cash resources to fund the entire transaction, which would negatively impact its leverage metrics and liquidity,” Moody’s said in a statement.
A further challenge for Gold Fields is the fact that its share price has been on a constant decline in the past year. It has shrunk by nearly 48 percent over this period and the company’s market capitalisation now stands at R35.16bn.
Strikes in the local gold sector have not helped the share price to stabilise.
In the quarter to June, the company swung to a quarterly loss of $129m compared with earnings of $27m in the three months to March and $105m in the quarter to June last year .
Apart from the credit metrics and liquidity implications, Moody’s said a negative outcome would call into question the reliability of Gold Fields’ internal corporate governance controls and procedures.
Gold Fields slid 1.52 percent to R47.40 on Friday. The gold mining index fell 2.45 percent. - Business Report