CHICAGO & MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the Foreign currency and Local currency Issuer Default Ratings (IDRs) of Grupo Mexico, S.A. de C.V. (Grupo Mexico), Southern Copper Corporation (SCC) and Americas Mining Corporation (AMC), as follows:
Grupo Mexico
--Foreign currency long-term IDR at 'BBB';
--Local currency long-term IDR at 'BBB'.
Americas Mining Corporation (AMC)
--Foreign currency long-term IDR at 'BBB'.
Southern Copper Corporation (SCC)
--Foreign currency Long-term IDR at 'BBB';
--Local currency Long-term IDR at 'BBB';
--Unsecured debt issuances at 'BBB'.
The Rating Outlook for all three entities is Stable.
Grupo Mexico's investment grade ratings are supported by the strong financial and operational performance of its diversified subsidiaries in the mining and transportation sectors. The ratings are further supported by the prolonged history of conservative leverage at the group level and across its subsidiaries, in addition to their leading market positions. Grupo Mexico's ratings were assigned using Fitch's parent and subsidiary rating linkage criteria.
The group has averaged a consolidated net debt-to-EBITDA ratio of below 1.0 times (x) for the last five years. For the last 12 months (LTM) to September 2011, Grupo Mexico generated a record EBITDA of USD5.4 billion and an EBITDA margin of 53%, with positive free cash flow of USD353 million after capital expenditures and dividends. In terms of liquidity, consolidated cash and marketable securities of USD3.2 billion comfortably covers impending consolidated debt maturities at the subsidiary levels up to 2014. On a standalone gross debt basis, Grupo Mexico currently holds just USD9.8 million of debt.
Grupo Mexico received a successful ruling in the antitrust proceedings at the start of 2011 contesting the merger of its two railroad companies, Ferromex and Ferrosur. This positive ruling has allowed the company to consolidate Ferrosur under its transportation subsidiary, Infraestructura y Transportes Mexico (ITM). The consolidation was formally implemented in 2Q11. Together, Ferromex and Ferrosur under ITM are the largest railroad operators in Mexico, with 62% market share by Mexican railway load distribution (million Ton-km). Grupo Mexico no longer faces any obstacles to conduct an IPO of ITM in the future, if it chooses to do so, other than to negotiate final ownership stakes with its minority shareholders.
SCC is Grupo Mexico's main contributor to its strong financial profile, and as of LTM Sept. 30, 2011 revenues were USD6.6 billion and EBITDA was USD3.9 billion, an increase on USD5.1 billion and USD2.9 billion respectively in 2010. SCC's LTM EBITDA was USD3.9 billion, compared to USD2.9 billion in 2010. This equates to SCC comprising 65% of revenues and 72% of EBITDA for the LTM period. Grupo Mexico has also benefited in its financial performance over the last year as a result of solid contributions from Asarco, and the resumption of operations at SCC's Buenavista mine.
The rating affirmation for SCC is supported by its position as one of the lowest cash cost producers of copper in the world and its strong profitability while maintaining a conservative leverage profile. The company's cash cost per lb of copper net of by-products for the nine months to 2011 was USD0.37 per lb and USD1.66 per pound excluding by-products. This amount compares well with all of SCC's peers, many of which do not benefit from similar high levels of by-product credits. Copper contributed approximately 77% of nine month 2011 revenues and molybdenum contributed 8%.
Further supporting the ratings, SCC's average net debt-to-EBITDA ratio for the last five years was just 0.2x. With LME average copper prices currently at around USD3.40 per lb, the company was able to maintain this conservative leverage ratio while increasing its total debt to USD2.8 billion in September 2011 from USD1.3 billion in 2009. Even with this material debt increase, SCC managed a low net debt-to-LTM EBITDA ratio of 0.4x for the period.
Copper prices are expected to average around USD3.00 per lb under a base case scenario over the next four years, and are favorable to SCC's capex plan to produce over one million metric tons of copper per year by 2015. According to data from the Copper Research Unit (CRU), SCC had a 3% global market share in refined copper as of October 2011. The company is also ranked as the 6th largest producer of mined copper in the world, and has a significant output of molybdenum.
SCC's LTM EBITDA margin as of September 30, 2011 was 58.4%, second only to Escondida within peers' rated in the copper mining sector by Fitch, and third after Vale when including the entire mining sector. Funds from Operations were USD2.5 billion for the LTM period compared to USD1.9 billion in 2010 and USD1.4 billion in 2009.
The company had a negative free cash flow of USD207 million after dividends of almost USD1.9 billion along with capex and investments of USD465 million. Fitch expects FCF to be positive at year-end 2011. SCC's FFO fixed charge coverage ratio was strong for the period at 14.9x, and improvement on 12.8x in 2010.
SCC's liquidity position is strong with cash and marketable securities of USD1.2 billion as of Sept. 30, 2011 providing the company with comfortable headroom considering its long-term amortization profile with just USD10 million a year due from 2010 - 2013 and USD200 million in 2015. The next major amortization of USD400 million is not due until 2020. The company's liquidity ratios are subsequently extremely strong for the current period, with a cash to short term ratio of 55.6x.
SCC benefits from its fully integrated mining operations in Peru and Mexico. The company is expecting a positive outcome regarding the postponed project for a third major copper mine in Peru, Tia Maria. This project was previously cancelled due to opposition from communities concerned about the environmental impact of the mine with regards to water contamination. SCC has made assurances it will use desalination plants to source its water and is in discussions with the new Peruvian government in order to reach an agreement with the affected communities. If completed, Tia Maria will contribute an additional 120,000 metric tons of copper per year, and is now expected to be operational in 2014, compared to original time estimates of 2012.
SCC's estimated 2011 total copper production of 630,000 metric tons places it as a mid-sized copper player globally. In 2010, the company produced 478,527 metric tons. The increase in copper output since 2010 relates mainly to production from SCC's Buenavista mine, once again operational following years of militant strike action in the Cananea area of Mexico.
As of September 2011, SCC was the third largest global molybdenum producer with 29.9 million lbs of molybdenum produced for the nine months, ranking behind Freeport with 61.3 million lbs and just behind Codelco with 35.7 million lbs for the same period. SCC has combined reserves of 59.7 million metric tons of copper as of December 2010. The company also benefits from the longest combined mine life in the copper industry with 81 years at the current rate of production.
The rating affirmation of AMC follows Fitch's parent-subsidiary linkage criteria, which indicates strong legal and operational ties between AMC and SCC, limited cross-defaults between SCC and AMC existing for AMC's bank debt, centralized treasury and management commonality. The mining division comprises of 83% of Grupo Mexico's consolidated revenues and 87% of EBITDA (SCC + Asarco for the LTM Sept. 30, 2011).
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 13, 2010);
--'Parent and Subsidiary Rating Linkage' (July 14, 2010);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Evaluating Corporate Governance' (Dec. 16, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Parent and Subsidiary Rating Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Evaluating Corporate Governance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=581405
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