AUG 26, 2021 8:00 AM

S&P May Upgrade Gold Fields Credit Rating To IG

buy

Gold Fields (BB + / Baa3 / -) posted good 1H21 financials. Gold production in the first six months rose 1.5% yoy to 1.1 Moz. Total revenues grew 13% year-on-year to $ 1.98 billion.Total costs (AISC) rose 11% yoy to $ 1,093 per ounce, driven by a 12% yoy appreciation in the rand and a 17% yoy increase in the Australian dollar. Free cash flow decreased to $ 180 mn from $ 320 mn in 1H20, which is associated with higher capital expenditures and higher tax payments. In 1Q23, the company is expected to put into operation the Salares Norte project. Net leverage declined from 0.56x at the end of 2020 to 0.49x in 1H21. In line with its dividend policy of 25-35% normalized earnings, Gold Fields announced interim dividends, which we estimate will be $ 120-125mn. The dividend payments to shareholders will not have significant pressure on the debt burden.

YTM


3.3%

RISK


BB+ / Baa3 / BB+

DURATION


6.3

Gold Fields kept its forecast for the current year unchanged. Management expects the company to be able to produce 2.30-2.35 million ounces of gold this year at a total cost (AISC) of $ 1,020-1,060 an ounce. Management also expects to increase its annual production to 2.7 Moz by 2024. To maintain production at this level, the company will actively invest in its own resource base or resort to acquiring third-party assets, including in new jurisdictions. The acquisition of new assets may put pressure on the debt profile, however, given the current low net debt to EBITDA level and the continued favorable conditions on the gold market, Gold Fields has sufficient financial flexibility. In addition, in the past, the company has funded M&A with its own shares.

In November 2020, S&P assigned a BB + credit rating to Gold Field with a positive outlook. We believe the rating could be upgraded to investment grade over the next 12-24 months. Thus, Gold Fields will have two investment ratings, which will support the company's Eurobonds. Among Gold Fields Eurobonds, we distinguish an issue with maturity in 2029 (XS1993965950). The bonds offer a dollar yield of 3.3% with a duration of 6.3 years.

Gold Fields is one of the world's largest gold exploration and development companies and ranks as one of Africa's largest gold producers. The company produces about 2.2 million ounces of gold a year at mines in Australia, Ghana, Peru, and South Africa. It has proved and probable reserves of 48 million ounces of gold. it also has copper mineral reserves of 620 million pounds a year. In 2013 it expanded its presence in Western Australia by acquiring the Granny Smith, Lawlers and Darlot mines  (known as the Yilgarn South Assets) from rival Barrick Gold. In 2014 Gold Fields sold its stake in a Peruvian property, the Cerro Corona mine. Its $1.1 billion takeover bid in 2016 to buy Kirkland Lake was rejected.