JOHANNESBURG – Moody’s Investors Service on Tuesday said South African gold and diamond miners’ credit quality had good prospects to continue strengthening.

Moody’s assistant VP Douglas Rowlings said the gold and diamond miners that the agency rated in South Africa had already re-set their operations to prevailing price conditions and were decoupled from the weak environment.

In a statement, Rowlings said this was in contrast to base metals miners where conditions were unlikely to improve meaningfully.

“Challenging industry conditions should continue through 2018 at least for base metal miners, and each company’s ability to adapt their balance sheets to a lower-earnings environment will continue to be a key consideration in ratings, as will liquidity and debt maturity profiles,” Rowlings said.

Moody’s report entitled “Metals and Mining – South Africa: Gold and Diamond Mining Companies Shine, But Base Metals Face a Slow Recovery” was released on Tuesday.

Moody’s said AngloGold Ashanti and Gold Fields were expected to continue to strengthen their credit metrics as earnings before interest, tax, depreciation and amortization (EBITDA) increase against lowered debt levels.

Petra Diamonds Limited was expected to do the same, as undiluted ore increasingly contributes to the production mix, with higher dollar-per-carat content and better recoveries once the mill extension at its Cullinan mine is completed in early 2017.

Mining employs 5% of the country’s formal workforce and contributes around 8% of GDP.

Moody’s said the slow-down in base metals mining was credit negative for South African companies, both directly and indirectly.

Corporates directly exposed to mining activity include: Transnet, which provides bulk commodity rail and port services; Barloworld Limited, selling heavy mining equipment and providing support services; Bidvest Group and Imperial Group via its freight and transport divisions.

Moody’s said this was to some extent mitigated because these corporates had diversified operations across industries and offshore which provided some insulation.

The rating agency said mining slow-down will indirectly affect those companies whose performance is more dependent on wider economic growth, such as divisions of Steinhoff International Holdings and Edcon Holdings.

The rating agency notes that operating conditions and uncertainty regarding future policy for the mining industry pose credit challenges to new mine investment.