Ghana Stock Exchange – listed gold miner AngloGold Ashanti on Monday welcomed the move by global ratings agency Standard & Poor’s (S&P) to affirm its BB+ long-term corporate credit rating despite the weak gold price.
S&P had previously put AngloGold on “CreditWatch Negative” after revising down its forecasts for the gold price this year and the next.
It has now affirmed the rating and removed the company from CreditWatch, but the rating outlook remains negative because the company’s earnings are highly sensitive to the gold price.
That means the rating could be lowered within the next six to 12 months if gold prices fall below its forecasts. “While there remains an ‘ outlook negative’ on the rating, it’s worth noting that S&P have taken a pretty conservative view on the gold price, seeing it at $1,250/oz this year (it’s averaged $1,291/oz so far in 2014) and falling to $1,200/oz in 2015,” AngloGold vice-president of investor relations Stewart Bailey said.
AngloGold’s bonds in the secondary market were looking strong, with its seven-year $1.25bn bond trading well above par at 109c on the dollar. Mr Bailey doubted whether S&P’s latest move would affect the ability of institutions to invest in AngloGold’s debt as it was an affirmation of the current rating.
AngloGold’s bonds were rated investment grade by Moody’s, Mr Bailey added.
S&P said the reason for reaffirming the rating was that AngloGold’s cost-cutting, more favourable exchange rates and management’s ability to reduce capital spending partly offset the weaker gold price environment. But there was only a margin of $200-$250/oz between S&P’s gold price expectation and AngloGold’s all-in sustaining costs, before taking interest and taxes into account. AngloGold also needs to spend about $1bn on growth projects over the next two years.
“Any further cost-cutting programmes, especially any that involve shutting down mines if needed, or turning around loss-making mines, will require some lead time,” S&P said. “This will, in our view, expose AngloGold to a mismatch between the spot prices and the company’s cost structure.”
S&P could revise AngloGold’s rating outlook to “stable” if it raised its gold price assumptions or AngloGold was able to keep costs significantly below the forecast gold price.
AngloGold Ashanti has 20 mining operations, of which Obuasi and Iduapriem mines are located in Ghana.