Global ratings agency S&P has given local miners a boost with upwardly revised reviews in light of a surge in metal prices that have seen companies reduce debt levels and improve earnings in the current upward cycle.
Gold producers AngloGold Ashanti, Gold Fields and diversified producer Sibanye-Stillwater were granted positive ratings, revising their outlook from stable to positive, with only Sibanye's outlook remaining stable.
The agency said higher gold and platinum group metal prices were allowing some mining companies, in particular those already prioritising deleveraging, to significantly reduce net debt, boost credit metrics, while maintaining a solid liquidity position.
"We estimate AngloGold Ashanti, Gold Fields and Sibanye-Stillwater will generate significantly higher cash flows than we forecast earlier this year, facilitating debt reductions and improved credit measures," it added.
It forecasted gold and PGM prices would likely remain above long-term averages through 2022, allowing producers to lower leverage on a more sustainable, through the cycle, basis. It expected gold prices to revert to the long-term average of $1 300 an ounce from 2023
"Gold prices have risen sharply in 2020, while prices for other precious metals, in particular palladium and rhodium, have also risen significantly since mid-2019, and we expect they will remain above long-term averages through 2022," S&P said in a note.
The rise in commodity prices has led to a surge in the stocks of local miners in recent months, with the metal gaining more than 25% compared to a year ago.
On Monday, AngloGold Ashanti announced its free cash flow rose nearly fourfold in the third quarter of 2020, allowing it to reduce its adjusted net debt to its lowest level in almost 10 years.
S&P said it assumed the company would generate substantial free cash flow over the next few years, led by strong gold margins and largely stable production. AngloGold Ashanti's growth projects include developments at Obuasi mine in Ghana and Tropicana mine in Western Australia.
South Africa is a leading producer of platinum group metals, and demand has been largely driven by demand in the automotive sector, where it is used in catalytic converters, is likely to continue.
For Sibanye, the world's top platinum producer, the agency forecasted the company would deliver about 1.45 million tons of platinum, palladium, rhodium and gold from its South African PGM assets, including Marikana, about 620 000 ounces of platinum and palladium at its US operation in 2020.
Sibanye's outlook, which was at stable, could be revised to positive if we think the company could maintain funds from operations to debt above 45% and positive free cash flows under low cycle conditions, said S&P, adding any upgrade would likely hinge on structural improvement in the group's operating efficiency profile.
In April, S&P cut South Africa's sovereign credit rating to subinvestment grade, citing the impact of the coronavirus on the already weak economy.