Fitch Ratings has placed
The Rating Watch Positive reflects Fitch's expectation that the combined company will benefit from greater scale and diversification as well as improved ability to exploit its project pipeline. The acquisition is expected to close in 4Q22, but may take longer than six months. Fitch would remove the Rating Watch Positive and rate Yamana under the Parent and Subsidiary Linkage Criteria on a consolidated basis with
Key Rating Drivers
Cost Position: Fitch views Yamana's average cost position in the second quartile of the global cost curve in 2021 as consistent with a 'BBB-' rating. Jacobina (21% of 2021 gold production) is in the first quartile; Canadian Malartic (40%) and
Size and Scale: Fitch sees Yamana's current operating size, scale and diversification as relatively limited compared to other investment grade peers although the company has a promising pipeline of exploration and development projects. Yamana's production is guided to roughly one million gold equivalent ounces (GEO) per year which is less than
Low Operating Reserve Lives: Fitch believes the ratio of reserves to production under represents Yamana's operating mine lives as the company finds it more efficient to drill while mining at existing operations. At seven years, however, Yamana's average operating reserve life is shorter than investment grade peers at 10+ years.
Acquisition by
Derivation Summary
Yamana is a midsize gold producer of roughly one million GEO per year which is less than
Yamana's operating reserve life at seven years is on the low end for investment grade peers.
Total debt/EBITDA for Yamana and all peers is roughly 1.0x or below given very high gold prices.
Key Assumptions
Fitch's key assumptions within its rating case for the issuer:
Gold price at
Silver at
930,000 average annual GEO produced;
Capex at guidance in 2022 and about
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Acquisition as contemplated by
Increase in size to around 1.5 million Gold equivalent ounces and diversification while maintaining its cost position in the second quartile of the global cost curve;
Expectations that total debt/operating EBITDA will be below 1.5x on a sustained basis at Fitch's gold price assumptions;
Maintaining an average operating mine life greater than 10 years at core mines.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Deterioration in gold prices and internally generated cash flows without an equal management response through lower costs, reduced spending, asset sales or raising additional equity;
Sustained negative FCF;
Expectations that total debt/operating EBITDA will be greater than 2.5x on a sustained basis at Fitch's gold price assumptions.
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
Solid Liquidity: Cash on hand was
Fitch expects FCF to be fairly neutral at its gold price assumptions in 2024 and 2025 given opportunities for capital spending and the company's dividend policy.
Issuer Profile
Summary of Financial Adjustments
No material financial adjustments have been made outside standard criteria.
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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