{"id":1165882,"date":"2020-02-16T14:13:41","date_gmt":"2020-02-16T20:13:41","guid":{"rendered":"https:\/\/www.mining.com\/?p=1014103"},"modified":"2020-02-16T14:13:41","modified_gmt":"2020-02-16T20:13:41","slug":"the-good-the-bad-the-ugly-miners-ability-to-stay-afloat-in-the-current-context","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1165882","title":{"rendered":"The good, the bad, the ugly: miners\u2019 ability to stay afloat in the current context"},"content":{"rendered":"<p>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.<\/p>\n<div class='d-flex justify-content-center d-xs-block d-sm-block d-md-none'>\n<div id='div-gpt-ad-1561499308230-0'><script>googletag.cmd.push(function() {googletag.display('div-gpt-ad-1561499308230-0');});<\/script><\/div>\n<\/div>\n<p>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. <\/p>\n<p>\u201cPrices for copper, aluminium, iron ore and zinc meaningfully declined after the COVID-19 outbreak due to the possible effect on Chinese demand,\u201d the market analyst reports. \u201cIn some cases, prices fell below Fitch\u2019s 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\u2019s GDP growth this year but the scale of the impact remains uncertain.\u201d<\/p>\n<h3>The good<\/h3>\n<p>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. <\/p>\n<p>Similarly, Brazil\u2019s Vale (NYSE: VALE) and Nexa Resources (TSX, NYSE: NEXA), as well as Mexico\u2019s 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. <\/p>\n<h3>The bad<\/h3>\n<p>On a completely different boat are Peru\u2019s Volcan (BME: XVOLB) and Chile\u2019s Codelco &#8211; the world\u2019s no.1 copper producer &#8211; 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.<\/p>\n<h3>The ugly<\/h3>\n<p>According to Fitch, Canada\u2019s First Quantum (TSX: FM) is also significantly exposed to copper price risk, given its concentrated price mix and limited leverage headroom. \u201cHowever, 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,\u201d the report states.<\/p>\n<figure class=\"wp-block-pullquote alignright\">\n<blockquote>\n<p>If the coronavirus epidemic leads to restrictions in mining operations and the transport of products, curtailed capacity and building of surplus inventory, miners\u2019 ability to stay afloat will depend on their cost position and level of leverage headroom<\/p>\n<\/blockquote>\n<\/figure>\n<p>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\u2019s Latin American assets are average cost but its US assets are higher cost. <\/p>\n<p>\u201cFreeport-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,\u201d Fitch highlights.<\/p>\n<p>More unstable is the forecast for Russia\u2019s Rusal, the world\u2019s 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.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Fitch Ratings issued an analysis of major companies&rsquo; ability to address market changes driven by the coronavirus outbreak, geopolitical tensions and natural disasters.<\/p>\n","protected":false},"author":42,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-gradient":""}},"footnotes":""},"categories":[2849,369],"tags":[],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1165882"}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/42"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1165882"}],"version-history":[{"count":2,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1165882\/revisions"}],"predecessor-version":[{"id":1165884,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1165882\/revisions\/1165884"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1165882"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1165882"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1165882"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}