• 139 days Could Crypto Overtake Traditional Investment?
  • 143 days Americans Still Quitting Jobs At Record Pace
  • 145 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 148 days Is The Dollar Too Strong?
  • 149 days Big Tech Disappoints Investors on Earnings Calls
  • 150 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 151 days China Is Quietly Trying To Distance Itself From Russia
  • 152 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 155 days Crypto Investors Won Big In 2021
  • 156 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 157 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 159 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 159 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 162 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 163 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 163 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 165 days Are NFTs About To Take Over Gaming?
  • 166 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 169 days What’s Causing Inflation In The United States?
  • 170 days Intel Joins Russian Exodus as Chip Shortage Digs In
Mining.com

Mining.com

Mining.com

MINING.com is a web-based global mining publication focusing on news and commentary about mining and mineral exploration. The site is a one-stop-shop for mining industry…

Contact Author

  1. Home
  2. Commodities
  3. Other

Miners Face Greater Headwinds

Miners

A report by Fitch Ratings states that, in the current context of geopolitical tensions, natural disasters and epidemics like that of the novel coronavirus, mining companies that have competitive cost structures and ample leverage headroom should be able to withstand commodity price risk.

On the other side of the spectrum, miners whose credit profiles are less efficient and who have limited financial flexibility are expected to be walking on the tightrope given the possibility of such exogenous events disrupting supply/demand conditions.

“Prices for copper, aluminium, iron ore and zinc meaningfully declined after the COVID-19 outbreak due to the possible effect on Chinese demand,” the market analyst reports. “In some cases, prices fell below Fitch’s 2020 rating case assumption of $5,900/tonne for copper, $1,750/tonne for aluminium, $75/tonne for iron ore and $2,300/tonne for zinc. Fitch expects the coronavirus outbreak to dampen China’s GDP growth this year but the scale of the impact remains uncertain.”

The good

In the view of the New York-based firm, giants BHP (NYSE: BHP), Rio Tinto (ASX, LON, NYSE: RIO) and Anglo American (LON: AAL) have low-cost assets and ample leverage headroom at current rating levels which should make them less vulnerable to longer than expected price weakness.

Similarly, Brazil’s Vale (NYSE: VALE) and Nexa Resources (TSX, NYSE: NEXA), as well as Mexico’s Southern Copper (NYSE: SCCO), are well-positioned to manage through a period of price weakness due to their strong balance sheets and low-cost structures.

The bad

On a completely different boat are Peru’s Volcan (BME: XVOLB) and Chile’s Codelco – the world’s no.1 copper producer – considered to be vulnerable due to a failure to reduce debt and/or the effect of lower prices on cash flow and the ability to internally fund Capex.

The ugly

According to Fitch, Canada’s First Quantum (TSX: FM) is also significantly exposed to copper price risk, given its concentrated price mix and limited leverage headroom. “However, increased production from the ramp-up of its Cobre Panama greenfield project, the ability to reduce Capex and limited near-term maturities will support cash flow generation and limit pressure on liquidity during a challenged operating environment,” the report states. Related: The Biggest Challenge Facing West Africa's Single Currency Plan

Phoenix-based Freeport-McMoRan (NYSE: FCX), which partially owns the massive Grasberg copper and gold mines in Indonesia, is not so badly positioned either due to its exposure to gold, which is a natural hedge. In addition to this, the company’s Latin American assets are average cost but its US assets are higher cost.

“Freeport-McMoRan significantly reduced debt over the past several years, has sufficient liquidity and has proven its willingness to curtail loss-making operations and cut dividends, if necessary,” Fitch highlights.

More unstable is the forecast for Russia’s Rusal, the world’s second-largest aluminium company by primary production output, because even though the company has a low-cost position in aluminium, its operating and financial profile weakened in 2019 due to prolonged low commodity prices, cost inflation and slower-than-targeted debt reduction.

By Mining.com 

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment