Global ratings agency S&P recently undertook positive rating actions on three South Africa-based miners – AngloGold Ashanti, Gold Fields and Sibanye-Stillwater – based on accelerated deleveraging.
The agency estimates that these miners will generate significantly higher cash flows than forecast earlier in the year, as well as facilitate debt reductions and improve credit measures.
With the Covid-19 pandemic having, to varying degrees, disrupted production, supply chains and capital expenditure (capex) planning, S&P on November 3 said higher precious metals prices have led to strong cash flow generation and favourable deleveraging outcomes for these companies.
In particular, the gold price rose sharply this year, while the prices of other precious metals, such as palladium and rhodium, have also risen significantly since mid-2019. S&P anticipates that these prices will remain above long-term averages through 2022 and is therefore taking positive rating actions across the three precious metals miners, whose credit metrics show material positive trajectories.
Specifically, S&P revised its outlook on AngloGold Ashanti to positive from stable and affirmed the ‘BB+’ global scale rating and ‘zaAAA/zaA-1+’ South Africa national scale ratings. The agency also affirmed its ‘BB+’ rating, with ‘3’ (65%) recovery rating on the senior unsecured debt issued by AngloGold.
S&P also revised its outlook on Gold Fields to positive from stable and affirmed the ‘BB+/B’ global scale ratings and ‘zaAAA/zaA-1+’ South Africa national scale ratings. The agency affirmed its ‘BB+’ issue rating, with a ‘3’ (65%) recovery rating on the senior unsecured notes issued by Gold Fields Orogen Holding.
Additionally, the agency raised its issuer credit rating on Sibanye Stillwater to ‘BB-’ from ‘B+’, while its ‘3’ (65%) recovery rating remains unchanged.
Higher gold and platinum group metal (PGM) prices are allowing some precious metal mining companies, especially those prioritising deleveraging, to significantly reduce net debt and boost credit metrics while maintaining a solid liquidity position, said S&P.
Further, in S&P’s view, gold and PGM prices will likely remain above long-term averages through 2022, enabling precious metals miners to lower leverage on a more sustainable, through-the-cycle basis.
Referring to the agency’s third-quarter metals price assumptions, published on September 24, the agency noted that it has raised its gold price assumptions for the rest of this year through to 2022, and that it expects prices will revert to the long-term average gold price of $1 300/oz from 2023.
S&P’s expectation is that close-to-zero interest rates will persist in the US for the next few years, which it said was consistent with the market consensus and the overall general financial market uncertainty related to the Covid-19 pandemic, and which underpins the agency’s revised gold price assumptions.
Looking beyond the next 6 to 12 months, the agency believes that economic recovery and an expected increase in interest rates will result in lower gold prices. In addition, abnormal gold prices could push more companies to increase their capacity, in turn leading to more sustainable price levels.
Platinum prices, meanwhile, have remained fairly flat over the past four years, whereas palladium and rhodium prices have risen materially since mid-2019 because of supply-demand imbalances, and have recovered to pre-pandemic levels that are approaching all-time highs.
Demand for PGMs mostly stems from the automotive sector, for use in catalytic converters and batteries, and following Europe's lead, countries with other large car markets, such as China and India, are in the process of implementing stricter emissions standards and testing regulations.
Therefore, S&P anticipates that the current demand levels for PGMs are likely to continue, especially as the supply of some PGMs (especially rhodium) primarily comes from South Africa.
However, years of underinvestment in PGMs mining in South Africa, a lack of new orebody discoveries and the long lead time for new projects to come on stream have constrained supply growth. Increasing demand and inelastic supply supports current PGM prices.
Over time, the substitution of palladium with platinum in autocatalysts could gain momentum, which S&P said “would alleviate palladium deficits and reduce oversupply of platinum in the industry, leading to more balanced and sustainable demand and pricing across the PGMs basket”.