Carli Cooke and Stephen Gunnion
GOLD Fields’ downgrade to below investment grade by Standard & Poor’s (S&P) sent yields soaring and pushed up costs for AngloGold Ashanti, also at risk of a cut to junk status after illegal strikes in the mining sector and elsewhere.
The yields on Gold Fields’ dollar-denominated eight-year bonds jumped the most in two years on Friday, according to data compiled by Bloomberg.
The premium of the debt over similar-dated US Treasuries widened 40 basis points to 403, the biggest gap since June 19. That compares with a two basis-point rise in the average spread for emerging-market mining companies, JPMorgan Chase indices show.
Yields on 10-year AngloGold debt, on negative watch by S&P, climbed to a two-month high.
Gold Fields was facing more social and political tensions, S&P said on Friday.
Mining production was crippled last month as workers walked off the job to protest for better pay. Lower ratings threaten to boost borrowing costs for the two mining companies as they seek to expand to increase production.
“The whole sector is under pressure” because of the strikes and drop in output, said Bronwyn Blood at Cadiz Asset Management.
AngloGold, “although more diversified globally, could also be downgraded,” she added.
Gold Fields had “no debt at the moment that’s going to cost us more,” spokesman Sven Lunsche said on Friday. “No major projects require funding in the foreseeable future.”
AngloGold would be presenting to S&P in coming weeks and “will make a strong case to retain the investment grade rating,” spokesman Stewart Bailey said. “We’ve got a robust balance sheet, a diversified portfolio and two strong new projects coming on stream in the near future, which add further strength to our investment case.”
AngloGold cut its dividend by half in the third quarter and reduced annual spending plans by $200 million (R1.7 billion), after strikes idled all of its South African mines, to help avoid a downgrade.
S&P would still need to look at the steps AngloGold had taken to improve its financial risk profile and assess whether they were enough, S&P credit analyst Elad Jelasko said last week.
Platinum, iron ore, coal and diamond mines were hit by illegal strikes that spread from Lonmin’s Marikana platinum mine, where workers won pay rises of as much as 22 percent.
S&P lowered Gold Fields’ longer-term credit rating to BB+ from BBB. – Bloomberg