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RATING ACTION COMMENTARY

Fitch Affirms
Minsur at 'BBB-';
Outlook Revised
to Stable
Tue 17 Oct, 2023 - 16:06 ET

    

Fitch Ratings - New York - 17 Oct 2023: Fitch

Ratings has affirmed Minsur S.A.'s Long-Term
Foreign and Local Currency Issuer Default Ratings
(IDRs) at 'BBB-'. Fitch has also affirmed the
company's USD500 million senior unsecured
4.50% notes due 2031 at 'BBB-'. The Rating
Outlook is revised to Stable from Positive.

Minsur's ratings reflect its solid business position

as one of the world's largest and lowest-cost
integrated producers of tin based in Peru and
Brazil with increased mid-sized low-cost copper
production. Fitch expects that Minsur will maintain
EBITDA margins in excess of 30% over the rated
horizon, supporting its cash flow and leverage
profiles.

The Stable Outlook revision is driven by Fitch's

assessment that further geographical or product
diversification will not be obtained in the rating
horizon and the existing profile is more
commensurate with Minsur's current rating.

KEY RATING DRIVERS

Mid-Sized Operations: Minsur is a relevant

producer in the relatively niche tin market, whose
integrated production from a mining unit in Peru
and another in Brazil produced 32,700 metric ton
(MT) of tin in 2022 and accounts for about 8.6% of
the world's tin output. Its new copper mine, Peru-
based Mina Justa, produced more than 125,400
MT of copper in 2022 and accounts for about 0.6%
of world's copper output. Fitch expects Minsur will
obtain 59% of revenue from copper and 34% from
tin in 2023, with the rest stemming from gold and
niobium tantalum ferroalloys.

Asset Concentration: While commodity

diversification increased with new copper
contribution, Minsur has a modest operational and
geographic diversification. Its assets are
concentrated in Peru, from which 90% of revenues
are obtained and where political unrest against the
government indirectly affected production in San
Rafael early in 2023. In 2022, Minsur reinitiated a
strategy to identify exploration targets with a
focus in the Americas, looking for gold, copper and
tin. However, long exploration and construction
lead times imply that the future diversification
sought after is not expected to meaningfully
improve during the ratings horizon. Current
diversification is in line with the ratings.

Positive Cash Flow Generation: Minsur is

expected to generate approximately USD1.1
billion of EBITDA adjusted after dividends paid to
non-controlling shareholders of Mina Justa, a 51%
margin to revenues, covering capex needs of
USD270 million in 2023, down from USD1.21
billion of EBITDA and more than USD400 million
of capex in 2022 amid stronger prices but final
Mina Justa related cash outlays. FCF after capex
and dividends margin is expected to average 4%
between 2023 and 2025 after it turned positive in
2022.

Leverage Profile: Fitch estimates the company's

gross and net leverage ratios will average 1.3x and
0.9x between 2023 and 2025. Gross debt is
expected to average USD1.215 billion in the same
period. EBITDA interest coverage ratios are
forecast at about 16x in the rating horizon. This is
in line with the last two years and comes after the
construction start of 60% owned Mina Justa
changed its average leverage profile of 4.8x and
3.2x from 2019 and 2020.

Tin and Copper Fundamentals: Although both

metals have positive mid-term prospects thanks to
higher electrification demand, short-term setbacks
started to appear. Increasing concerns on the
strength of consumer electronics weigh on tin
prices. Tin stocks in the London Metal Exchange
have reached three-year highs despite supply
disruptions from Myanmar. The International
Copper Study Group trimmed its deficit forecast
for 2023 to 27,000 MT from its prior 114,000 MT
and projects a surplus of nearly 467,000 MT in
2024, growing from the 298,000 MT previously
projected. Fitch expects copper and tin prices will
decline by 7% in 2024.

Mid Mine Life, Low-Cost Producer: Minsur's

weighted average mine life stands at 14 years
given contained metals in reserves relative to 2022
production. The newly developed Mina Justa open
pit has 12 years, whereas San Rafael underground
and B2 deposit combined have six years. High
grades in the sulphides section of Mina Justa
(0.88%) prop up its USD3,257/MT second quartile
cost position in the copper all-in sustaining cost
curve according to metals consultancy CRU.
Exploration success has maintained tin head
grades above 2.30% in San Rafael. This reserve
replacement track record mitigates in some degree
San Rafael's low mine life.

DERIVATION SUMMARY

Minsur's rating reflects the company's business

position as one of the world's largest and lowest-
cost producers of tin, which partially offsets its low
diversification. Minsur is a medium-scale company,
although it ranked as the world's second-largest tin
producer because the global market size for tin is
relatively minor relative to other base metals. Its
new low-cost copper operation helped to boost its
size and diversification to be more in line with its
'BBB-' rating.

Minsur benefits from a second-quartile cash cost

position in copper at its Mina Justa mine and
amongst the best worldwide when including
sustaining capex, which compensates for its lower
diversification when compared with mining peers
Volcan Compania Minera S.A.A. (B-/RWN),
Compania de Minas Buenaventura S.A.A. (BB-
/Stable), both at the fourth-quartile of zinc and
gold costs, respectively. Nexa Resources S.A. (BBB-
/Stable) is more focused in zinc, but is more
geographically and operationally diversified but
operates at higher costs in the third-quartile of
zinc costs. Industrias Penoles S.A.B. de C.V.
(BBB/Stable) operates at the third-quartile of gold
costs and is geographically concentrated in Mexico
but is larger in scale and more diversified in
operations and commodities than Minsur.

Minsur has historically shown a stronger capital

structure than Volcan and Nexa, and its credit
metrics have strengthened with the full-ramp up of
its copper mine reaching levels comparable to
those of Penoles, albeit with a shorter track record
of prioritizing debt repayments. Minsur's cash flow
generation has been historically less volatile than
Buenaventura's, given its sustained low-cost
production of tin.

The company has been able to extend the mine life

within its San Rafael district to at least six years,
but this key asset still remains on the low end of
mine life. Its Mina Justa operation's 12 years of
mine life and smaller but longer lived Taboca
improve the consolidated life towards 14 years.
This is similar to Penoles' consolidated 11 years,
but larger than Nexa's nine, Volcan's five or
Buenaventura's four years.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Our Rating Case

for the Issuer:

--Tin prices of USD26,000/MT in 2023,

USD24,200/MT in 2024 and in 2025;

--Copper prices of USD8,600/MT in 2023,

USD8,000/MT in 2024 and in 2025;

--Gold prices of USD1,900/oz in 2023,

USD1,800/oz in 2024, and USD1,600/oz in 2025;

--San Rafael and B2 tin output of 23,500 MT in

2023, and 24,000 MT in 2024 and in 2025;

--Taboca tin output of 5,600 MT in 2023 and 6,000

MT thereafter;

--Pucamarca gold output of 52,500 oz in 2023,

40,000 oz in 2024 and 40,000 oz in 2025;

--Mina Justa copper output of 143,500 MT in

2023, 130,000 MT in 2024 and 150,000 MT in
2025;

--Capex of USD270 million in 2023, in 2024 and in

2025.

RATING SENSITIVITIES

Factors that could, individually or collectively,

lead to positive rating action/upgrade:

--A sustained net debt/EBITDA ratio of less than

1.0x;

--Additional mine diversification in products and

geography;

--Longer average mine life exceeding 15 years.

Factors that could, individually or collectively,

lead to negative rating action/downgrade:

--A sustained net debt/EBITDA ratio of more than

2.0x with an unwillingness or inability to
deleverage;

--An adverse change in the overall framework

toward mining projects in Peru.

LIQUIDITY AND DEBT STRUCTURE

Sufficient liquidity: The company held cash and

marketable securities of USD305 million and Fitch
adjusted short-term debt of USD167 million as of
June 30, 2023. Total Fitch adjusted debt at Minsur
as of June 30, 2023 was USD1.3 billion, mainly
composed of the company's USD500 million senior
unsecured 4.50% notes due in 2031 and its
USD496 million of syndicate debt outstanding at
Marcobre related to its Mina Justa copper mine.
The balance of the company's debt is primarily
comprised of USD40 million unsecured bank loans
for the company's tin and gold operations in Peru,
that were paid in 3Q23, USD175 million for the
Taboca subsidiary, in Brazil and the balance for
Marcobre short-term debt.

ISSUER PROFILE

Minsur is the world's second largest tin miner with

integrated operations in Peru and Brazil. Through
its subsidiary Marcobre, it started the Mina Justa
copper mine in Peru. The company also produces
gold in Peru and ferro-niobium-tantalum in Brazil.

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

The highest level of ESG credit relevance is a score

of '3', unless otherwise disclosed in this section. A
score of '3' 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. Fitch's ESG
Relevance Scores are not inputs in the rating
process; they are an observation on the relevance
and materiality of ESG factors in the rating
decision. For more information on Fitch's ESG
Relevance Scores, visit
https://www.fitchratings.com/topics/esg/products
#esg-relevance-scores.

RATING ACTIO

ENTITY / DEBT RATING 



Minsur S.A.
LT IDR BBB- Affirmed

LC LT IDR BBB-

Affirmed

senior
LT BBB- Affirmed
unsecured

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APPLICABLE CRITERIA

Corporates Recovery Ratings and Instrument

Ratings Criteria - Effective from 9 April 2021 to 13
October 2023 (pub. 09 Apr 2021) (including rating
assumption sensitivity)
Corporate Rating Criteria - Effective from 28
October 2022 to 3 November 2023 (pub. 28 Oct
2022) (including rating assumption sensitivity)
Sector Navigators: Addendum to the Corporate
Rating Criteria (pub. 12 May 2023)
Climate Vulnerability in Corporate Ratings Criteria
(pub. 21 Jul 2023) (including rating assumption
sensitivity)

APPLICABLE MODELS

Numbers in parentheses accompanying applicable

model(s) contain hyperlinks to criteria providing
description of model(s).

Corporate Monitoring & Forecasting Model

(COMFORT Model), v8.1.0 (1)

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ENDORSEMENT STATUS

Minsur S.A. EU Endorsed, UK Endorsed

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Energy and Natural Resources Corporate Finance

Latin America Peru

ENTITIES

Minsur S.A.

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Peruvian Corporate Credit Indicators: Fourth-Quarter

2022 (Subdued Economy Drives Downgrades)

Peru’s Social Unrest Pressures Domestically Focused

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Peru's Social Unrest Pressures Domestically Focused

Corporates (Natural Resources, Utilities and Energy (Oil &
Gas) at Risk)

Latin American Metals and Mining Companies-Peer

Review

Latin American Metals and Mining — Peer Review

Peruvian Corporate Credit Indicators: Third-Quarter

2022 (Downgrade Risks Increase as Sovereign Outlook Is
Revised)

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