VOLCAN COMPAÑÍA MINERA S.A.A.
Fitch Ratings has affirmed
The Rating Outlook was revised to Stable from Positive.
The ratings affirmation and Outlook revision to Stable reflects Fitch's expectation that the company's leverage profile and liquidity will remain flat with net debt to EBITDA estimated to average 2.1x. The rating case no longer considers an equity raise of
Key Rating Drivers
Supportive Zinc Prices: High energy costs continue to exert pressure on zinc smelters, sustaining a bottleneck in the refined market. According to metals and mining consultancy CRU, the refined market will remain in a 183,000 MT deficit during 2022, less than 1% of production, and remain tight during 2023. The supply deficit coupled with depleting inventories pushed zinc prices up to
Pressured Cost Position: Recent inflationary pressures on steel, oil, freights, explosives, chemical reagents and wages have all prevented Volcan from improving its cost position, which began to deteriorate during 2020 due to pandemic-related government restrictions in
Cash Flow Generation: Fitch forecasts Volcan's EBITDA at
Leverage profile: Fitch projects gross leverage over
Glencore Ownership: Volcan's ratings have not been upgraded from its standalone credit profile due to Glencore's majority voting rights. Glencore's 55% voting and 22% economic stakes in the company is a positive consideration, as it enhances Volcan's ability to receive financing from various sources. Glencore is a leading zinc producer and has curtailed operations at its higher cost mines, which has supported prices, during times of suppressed prices. Volcan is considered a key asset by Glencore due to its zinc operations footprint, cost position, and its extensive mining rights within
Potential Asset Sales: Non-core assets sales could be used to repay debt. Key assets that could be sold include Volcan's approximate 16% stake in Polpaico, a Chilean cement producer, and its hydro power plants. The company also owns a port project 50 miles north of
Derivation Summary
Volcan benefits from a fairly diversified production of base and precious metals, similar to peers
The company's scale of operations is comparable albeit lower than that of
Volcan's cost position has been under pressure by cost inflation along with those of moderate scale peers. Similar to peers, Volcan demonstrated a willingness and ability to reduce development and exploration expenditure during periods of lower commodity prices to preserve cash flow. The consolidated life of mine of four years of reserves is also on the lower end, when compared with Peruvian and other global mining peers.
Key Assumptions
Fitch's Key Assumptions Within The Rating Case for the Issuer:
Average zinc price of
Average silver price of
Average lead prices of
Average copper price of
Capex of
Zinc output of 247,000 MT, 266,000 MT and 283,000 MT in 2022, 2023 and 2024;
Silver output of 10.3 million oz, 11.4 million oz, and 11.6 million oz in 2022, 2023, and 2024;
Yauli's zinc and silver production rise 18% and falls 11%, respectively in 2022. Fitch expects Yauli to contribute 62% of revenues in 2022.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
A sustained net debt/EBITDA ratio of less than 2.0x in a sustained basis;
Positive to neutral FCF over the rating horizon;
Improved liquidity through asset sales or equity injection.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A sustained net debt/EBITDA ratio of more than 3.0x with an unwillingness or inability to deleverage;
Negative FCF over the rating horizon.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: Volcan ended
Issuer Profile
Volcan is a polymetallic mining company with a moderate cost position on the global zinc cost curve per CRU. It has a track record over 40 years of operating in
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
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
RATING ACTIONS
Entity / Debt
Rating
Prior
LT IDR
BB
Affirmed
BB
LC LT IDR
BB
Affirmed
BB
senior unsecured
LT
BB
Affirmed
BB
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
(C) 2022 Electronic News Publishing, source
