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Minsur S.A. -- Moody's upgrades Minsur to Ba1; stable outlook

·15 min read

Rating Action: Moody's upgrades Minsur to Ba1; stable outlookGlobal Credit Research - 07 Sep 2022New York, September 07, 2022 -- Moody's Investors Service ("Moody's") upgraded Minsur S.A. ("Minsur")'s corporate family rating (CFR) to Ba1 from Ba2. The outlook remains stable.Ratings Upgraded:..Issuer: Minsur S.A..... Corporate Family Rating, Upgraded to Ba1 from Ba2 Outlook Actions: ..Issuer: Minsur S.A. ....Outlook, Remains Stable RATINGS RATIONALE The rating action reflects Minsur's sound credit metrics that better positions the company in the Ba1 rating category supported by high quality copper and tin assets operating in the first and second quartile of the mining cash cost curves, and a track record of good liquidity and conservative financial policies, despite the geographic concentration (90% of cash flows generated in Peru and 10% in Brazil).Moody's expects Minsur to continue posting strong credit metrics including leverage around 1.1x, positive free cash flow generation and strong EBIT margin above 35% at different price points. Moody's assumes medium-term price sensitivities of $3-$4 per pound of copper, $1,300-$1,600 per ounce of gold and $21,762-$16,080 per ton of tin. The rating incorporates Minsur's conservative financial policies focused on progressive reductions in financial leverage through a combination of strong execution, tight cost control and debt repayment leading to improved credit metrics which in turn, increased the company's cushion to withstand volatility in operations. As of June 2022, Minsur's leverage as adjusted by Moody's was 0.7x with total debt of $1.3 billion down from $1.6 billion as of December 2021.The Ba1 rating considers the positive long term fundamentals for tin and copper, which together account for 96% of the company's cash flows. The company's credit quality is additionally supported by low costs and high-grade ore in its mines, largely because of its ownership of the San Rafael mine, the world's largest tin-producing underground mine; and the diversification into copper, following Mina Justa's ramp up, which will represent half of Minsur's cash flows from 2022 onward.Minsur's liquidity is good supported by its cash balance at $521 million as of June 2022 and the expectation of positive free cash flow generation given the company's lower capex needs at $230 million on average in the 2023-2025 period, following the completion of Mina Justa, and the company's conservative financial policies regarding dividends payments. While Minsur does not have committed credit facilities, the company's cash balance as of June was enough to cover debt maturities through 2023. Although the company's rating does not factor in any uplift because of Minsur's ownership by the Breca group, one of Peru's largest conglomerates, it is considered credit positive for the company as Minsur benefits mostly by way of potential access to funding and occasional implicit support.The stable outlook reflects Moody's view that the company's operating performance will remain stable supported by strong cash flows from operations, and that the company will maintain its competitive cost position supporting leverage consistently around 1 time.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGPositive rating pressure would require Minsur to continue to demonstrate a consistent track record of strong operating performance and sustained cost position and good liquidity. A potential rating upgrade would also consider the company's future strategy around growth and diversification and its funding approach. Quantitively, the outlook or ratings could be positively affected if the company's leverage, measured as total Moody's-adjusted debt/EBITDA, consistently remains below 2.5x or lower with interest coverage, measured as adjusted EBIT/interest expenses, above 4.5x and CFO - Dividends / debt above 35% on a consistent basis.Negative pressure on Minsur's ratings or outlook could arise if there is any material change in the company's underlying financial or operational strategy, including material debt-funded acquisitions, aggressive shareholder returns or additional tax burden that harm company's profitability and its cash generation capacity straining liquidity. Quantitatively, Minsur's rating could be downgraded if the company's liquidity contracts substantially. A decrease in cash flows that result in CFO - Dividends / debt remaining below 20%, Moody's-adjusted debt/EBITDA above 3x or adjusted EBIT/interest expense below 4x on a sustained basis could also lead to a downgrade.The principal methodology used in this rating was Mining published in October 2021 and available at https://ratings.moodys.com/api/rmc-documents/76085. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.Headquartered in Lima, Peru, Minsur is a majority-owned subsidiary of the Peruvian conglomerate Inversiones Breca S.A. The company is primarily a producer and seller of tin, copper and gold in Peru and Brazil, where it also produces tin, as well as niobium and tantalum alloys as by products at Taboca. REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.This rating is unsolicited.a.With Rated Entity or Related Third Party Participation: YESb.With Access to Internal Documents: YES c.With Access to Management: YESFor additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating. Rosa Morales Asst Vice President - Analyst Corporate Finance Group Moody's de Mexico S.A. de C.V Ave. Paseo de las Palmas No. 405 - 502 Col. 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