JOHANNESBURG (miningweekly.com) – Ratings agency Standard & Poor’s (S&P) on Wednesday cut its long-term corporate credit rating on gold major AngloGold Ashanti to BB+ from BBB- and its long- and short-term South Africa national-scale ratings on AngloGold to zaA/zaA-2 from zaAA-/zaA-1.

It also lowered its issue rating on AngloGold's senior unsecured notes to BB+ from BBB-.

S&P stated that the downgrade followed the significant drop in the gold price since the start of the year, with the price now below $1 300/oz, compared with $1 700/oz at the end of 2012.

“It also reflects our concern that AngloGold will generate more negative free cash flow and incur a more pronounced rise in debt with the current low gold prices than we had previously assumed.

“We view the company's free operating cash flow and credit metrics as particularly sensitive to a low gold price environment, given its high unit cash cost profile and high capital expenditure (capex) needs in the coming years,” the ratings agency said in a statement.

However, it noted that there were mitigating factors, such as the weakening of the rand and the gold mining company’s management's aggressive measures to reduce its cash expenses and optimise its investments and asset portfolio.

AngloGold announced on Monday that it had cut its production forecast for the full year to between 4-million and 4.1-million ounces of gold, from the previous guidance of between 4.1-million and 4.4-million ounces, in line with its decision to remove marginal ounces from its production profile and to optimise free cash flow generation.

The gold miner had committed to curbing costs owing to the lower and more volatile gold price and would focus its capex on its highest-quality assets.

“However, we also assume that there will be an at least six months lag on the benefits from these actions. Consequently, we have revised the company's financial risk profile to ‘significant’ from ‘intermediate’,” S&P added.

Meanwhile, the ratings agency noted that the highly volatile and difficult-to-predict gold price and the outcome of miners’ wage negotiations in South Africa would be the main drivers for AngloGold’s results in the coming quarters.

“Under our base-case scenario, we assume that gold prices will stabilise at around $1 350/oz over the coming 18 months. However, an exit of financial investors from gold-linked exchange traded funds could push prices lower.

“We estimate that AngloGold's unit cash cost, including sustainable capex, is around $1 150/oz to $1 200/oz in 2013 and that it may improve slightly in 2014 to about $1 050/oz to $1 100/oz,” S&P stated.