Mines face deeper debt if SA’s rating falls

File picture: Denis Farrell

File picture: Denis Farrell

Published Mar 10, 2016

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Johannesburg - The decision by ratings agency Moody’s Investors Service to review South Africa’s credit rating for downgrade is worrying for the mining sector as it increases the debt burden as borrowing costs increase.

An aspect Moody’s highlighted as a factor for a possible downgrade was “low commodity prices”.

Read: SA mining sector's revival unlikely

South Africa is at the mercy of the global commodity rout and is not alone in the commodity fallout.

In January, Moody’s globally placed the credit ratings of 175 energy and mining companies on review for a possible downgrade.

Jacques Botha, the chief economist at Afriforesight, forecast mining to remain at 8 percent of gross domestic product for this year, with tourism picking up “very smartly”.

He said the outlook for the general economy was fairly stagnant this year and would lift slowly next year.

Botha said Moody’s bearish outlook on commodities was problematic, with its talk of secular stagnation and with the agency recently downgrading mining firms and countries like Brazil.

“Our models show that almost all commodity prices, with the exception of coal and iron, would have now reached their bottom in 2016 to thereafter turn into a cyclical upswing.”

Martyn Davies, the managing director for emerging markets and Africa at Deloitte & Touche, said that Moody’s decision was worrisome news.

BUSINESS REPORT

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