Fitch Ratings has downgraded
The Outlook is Stable.
The downgrade reflects Zijin's aggressive acquisition growth appetite, which will result in volatility in its leverage profile and is no longer commensurate with a 'BBB' category rating. We expect Zijin's leverage to be sustained above 2.2x between 2022 and 2024, the level above which we would consider negative rating action.
Zijin's ratings continue to be supported by its well-diversified portfolio of precious and base metals, an average cost position in the second quartile of the global cost curve and high-yielding assets with a long mine life. The Stable Outlook reflects Fitch's expectation that Zijin will continue generating strong operational cash flow from its existing operations, which will aid its ongoing acquisitive appetite.
Key Rating Drivers
Acquisition Strategy Credit Negative: We regard Zijin's aggressive acquisition strategy as credit negative as it increases volatility in the leverage profile. Zijin announced three major acquisitions in
We expect limited near-term economic benefits from its recent acquisitions and equity investments, even though they will result in a higher reserve base and better diversification, as most of the projects acquired this year are not expected to start operations until 2024 or later, according to management. Its equity investments are also not likely to yield material cash dividend inflows for the time being.
Debt-Funded Acquisitions Increase Leverage: Fitch forecasts Zijin's larger-than-expected acquisitions, equity investments and associated capex will raise its net leverage, measured by net debt to EBITDA, to above 2.2x between 2022 and 2024 based on our commodity price assumptions. We expect Zijin to fund part of its
Strong Operational Cash Flow: Fitch estimates Zijin's funds from operation will remain strong at
Higher Production on Project Execution: Management expects the successful execution of the company's newly added projects to add significant output from 2024-2025. Planned annual output of gold will increase by 14 tonnes by 2025, with an addition of 50,000-70,000 tonnes of lithium carbonate.
Zijin has a record of strong execution of previously acquired projects, with its copper production more than doubling in 2017-2021 after production from acquired copper mines was ramped up rapidly. Its mined copper production further rose by 55% yoy in 9M22, driven by production in three mines acquired in
Derivation Summary
Zijin is rated one notch lower than
Zijin has a smaller scale, lower margins and higher leverage than major copper miner
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Mined copper mid-cycle average selling price of
Mined copper sales volume of 773,000, 934,000 and 997,000 tonnes in 2022, 2023 and 2024, respectively (2021: 530,000 tonnes); mined gold sales volume of 58, 73 and 78 tonnes in 2022, 2023 and 2024, respectively (2021: 46 tonnes)
Capex of
Annual investment outflow of
Dividend payout ratio of 34% per year in 2022-2024
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Transition away from the highly acquisitive growth strategy
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Net debt/EBITDA sustained above 3.0x
Significant increase in exposure to markets with high geopolitical and operating environment risks
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: Zijin had
Issuer Profile
Zijin was one of the world's 10 largest copper producers, a top-15 gold miner and a top-five zinc producer in 2021 by output. Overseas mines contributed 53% of its copper, 60% of gold and 45% of zinc and lead production in 2021.
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
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