Moody’s upgrades St Barbara ratings, outlook stable

JOHANNESBURG (miningweekly.com) – Ratings agency Moody’s Investors Service has upgraded Australian gold miner St Barbara’s corporate family rating and senior secured rating from B2 to B3, and assigned the company a stable outlook.

Moody’s assistant VP Saranga Ranasinghe said that the upgrade of St Barbara's rating reflected the significant improvement in the company's financial profile, following its efforts to reduce debt, and the continued improvement in its operating costs.

"St Barbara has established a track record of significant cost reductions which, combined with its conservative financial policies and the favourable trend in the price of gold, has allowed the company to continue to reduce debt.”

As a result, leverage – as measured by adjusted debt/earnings before interest, taxes, depreciation and amortisation (Ebitda) – improved to 0.8 times at the end of June.

The company has also positioned itself as one of the lowest cost producers globally, with all-in sustaining costs of A$933/oz, which – if sustained – should generate strong cash flow under Moody's gold price sensitivities.

Moody's has revised these sensitivities and currently expects the gold price to average $1 250/oz over the next 12 months. At such a price level, Moody's expects St Barbara to generate Ebitda of around A$230-million to A$270-million, leading to a further improvement in leverage to 0.7 times in the 2017 financial year, without further debt reduction.

St Barbara's Gwalia operation, in Western Australia, continues to generate strong earnings and contributed 86% of group cash flow in the 2016 financial year. But, this degree of cash flow concentration is also a key constraint on St Barbara's rating, as any possible operational issues at Gwalia would likely result in a material reduction in group cash flow.

The ongoing strategic review at Simberi, in Papua New Guinea, highlights the possibility that St Barbara may divest the asset, which would further increase its level of asset concentration, leaving the company as a single-mine operator, being Gwalia, which has a remaining reserve life of about eight years.

Accordingly, Moody's said that it expected St Barbara, over the medium term, to pursue expansion and exploration activities to secure new, long-term sources of revenue. Such activities were likely to be the dominant factor influencing the firm's future credit profile.