South Africa-based Gold Fields’s $6.7-billion acquisition of Yamana Gold will enhance its credit quality as the combined group will benefit from a bigger scale and broader geographic diversification without any new debt being raised, says credit ratings agency Moody’s.
The acquisition of its peer will enlarge Gold Fields’ production footprint from nine gold-producing assets to 14 across eight countries. Yamana has mines in Canada, Argentina, Chile and Brazil, and Gold Fields has said that the deal fits with its strategy of expanding in “mining friendly” jurisdictions across the Americas.
The broader geographic footprint will reduce Gold Fields’ exposure to country specific risks, which is credit positive, Moody’s says in an investor note this week.
Gold Fields has high exposure to Ghana, which is a credit challenge because of the sovereign’s weak credit quality. About 33% of Gold Fields’ reported revenue in 2021 was derived from Ghana. Yamana’s weakest mine exposure from a country-risk perspective is Argentina, which contributed 15% of revenue in 2021.
“We see operations in sovereigns with weak credit quality as high-risk jurisdictions because there is increased exposure to uncertainties, such as political instability, expected changes in regulations and resource nationalism. In addition, the risk of higher taxes for miner or legislative increases when governments are challenged in meeting their social and political commitments or see taxes as a way to address fiscal deficits,” says Moody’s.
The agency calculates that while the combined group will have about a quarter of revenue from weak sovereign jurisdictions, it will have 58% of revenue from investment-grade countries. This will increase further once the Salares Norte project, in Chile, starts production next year.
Gold Fields’ legal home and headquarters will remain in South Africa, which Moody’s says exposes the company to regulatory and political risks.
When the transaction, announced earlier this week, is complete, Gold Fields will become one of the top four global gold producers with production of more than 3.2-million ounces a year. Proforma unit costs, as measured by all-in sustaining costs, will be around $1 000/oz to $1 100/oz, which places it in the middle of the industry cost curve and in line with several invest-grade peers.
