CAP S.A.
Fitch Ratings has affirmed
Fitch also affirmed CAP's National Equity Rating at First Class Level '2(cl)'. The Rating Outlook has been revised to Negative from Stable.
The rating action reflects Fitch's expectation regarding CAP's credit metrics deterioration consistent with the temporary downturn of two of its subsidiaries' operating performance especially CSH, its steel producer. In addition, net debt leverage ratios are expected to be pressured in 2025, considering Fitch's midcycle price assumptions.
The Negative Outlook factors CAP's slower than expected deleveraging , considering the complex market conditions of the global steel market, and particularly CSH, that is burning relevant amounts of cash.
Key Rating Drivers
Uncertainty Around Non-Core Businesses: Fitch expects CAP's net leverage to be 1.7x in 2024, 2.2x in 2025, and 1.9x in 2026. These pressured credit metrics take into account expectations of zero EBITDA from its steel operations in 2024 and
Temporary Strain in Cash flows: Over the rating horizon, the company's EBITDA including dividends to minorities is expected to decrease to
Historically Conservative Financial Profile: The rating affirmation is based on CAP's historically conservative capital structure and demonstrated resilience in periods of price deterioration. CAP benefits from its niche market position as a value-added iron ore producer, which provides the company with high realized prices and a buffer against iron ore market volatility. The company is able to adjust its product blend in response to lower premiums to take advantage of its competitive cost structure and maintain good margins.
Highly Concentrated; Strong Reserves: Over 95% of CAP's consolidated EBITDA comes from iron ore mining, whose profitability and market position are much stronger than those of the steel making and processing businesses. Increased penetration of lowly priced Chinese imports markedly affected steel making margins and prompted the local industry to ask for government support. Fitch positively factors the long reserve life of CAP's iron ore mining business. CAP had 817 million tons of iron ore contained in reserves in 2022, which is slightly below 50 years of mine life at expected 17 million tons of production per year. Average grade in reserves is 30% but reserves will be re-certified in 2024.
Equity Rating: CAP's equity rating is based on the company's strong credit profile, its long track record in the stock market, and a market presence of 100%. CAP also reports market capitalization of
Derivation Summary
CAP's ratings are constrained by its small size relative to the global mining industry and low mining and geographic diversification. The latter is somewhat compensated by historically conservative financial management reflected in a resilient financial profile through the cycle. The company's business profile is similar to
CAP also has a capacity of 12.5 million of pellet feed and sinter feed, reaching a standard total production capacity of 16.5 million tonnes.
However,
Key Assumptions
Fitch's mid-cycle prices are at
Cash costs of
Freight costs of
Capex at
EBITDA generation by the steel subsidiary of approximately -
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The Outlook would be revised to Stable if the company is able to recover its EBITDA coverage ratio above 8.5x and resolve the cash burn of its steel business on a sustained basis.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade would be possible if CSH is not able to stabilize its operating cash generation and continues draining cash to the group affecting the holding's credit profile;
Consolidated cost profile consistent with the fourth quartile;
A sustained net debt to EBITDA ratio above 2.0x and/or EBITDA to interest expense of 8.5x or less;
A significant and prolonged deterioration in liquidity and persistent negative FCF.
Liquidity and Debt Structure
Low Refinancing Risk: The company reported
The company has a comfortable long-term debt amortization schedule with the next debt payment estimate at
Issuer Profile
CAP is a medium- to small-scale Chilean iron ore miner focused on high-quality iron ore production with a significant proportion of EBITDA derived from the mining activity. Iron ore production is exported mainly to
Summary of Financial Adjustments
EBITDA adjusted by dividend to minorities;
Restricted cash;
Debt adjusted by confirming transactions;
Leasings excluded from debt.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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