Toronto, September 09, 2020 -- Moody's Investors Service, ("Moody's") today assigned a B3 rating
to HudBay Minerals, Inc.'s ("HudBay") proposed new senior
unsecured notes. Proceeds will be used to refinance existing unsecured
notes and for general corporate purposes, including additional debt
repayment and to pay related fees and expenses.
Assignments:
..Issuer: HudBay Minerals, Inc.
....Senior Unsecured Regular Bond/Debenture,
Assigned B3 (LGD4)
RATINGS RATIONALE
HudBay's credit profile (B2 CFR) is constrained by its modest scale,
mine concentration, commodity price risk, leverage expected
to be 4.8x in 2020 (6.4x LTM Q2/20), and the risk
of mine operation disruptions due to the coronavirus. Its Constancia
copper mine in Peru accounted for over half of the company's revenues
and over 85% of the company's gross profit in 2019. HudBay
benefits from its mine locations in favorable mining jurisdiction (Canada
and Peru), product diversity beyond copper (gold, silver,
zinc and molybdenum) which allows for competitive costs, net of
by-product credits and a long reserve life (17 year mine life)
at its Constancia mine.
HudBay's liquidity is good (SGL-2) with about $590 million
in sources compared to about $130 million of uses over the next
year. The company's liquidity sources include about $300
million of cash at June 30, 2020 (net of Moody's assumption of operating
cash needs of about $100 million) and about $290 million
of availability under its $400 million secured credit facility
maturing July 14, 2022. Liquidity uses include our expectation
of negative free cash flow of about $130 million over the next
12 months, and no debt maturities. In July, 2020,
HudBay amended its credit facility which included revised financial maintenance
covenants. With the revised covenants, we expect the company
to remain in compliance with its covenants.
The stable outlook reflects our expectation that leverage will remain
near 4.5x in 2021 but move below 4x beginning in 2022 once the
company delivers gold under its prepaid agreement and reduces that liability
($123 million), which we consider to be debt. It also
incorporates our view that HudBay will maintain at least adequate liquidity
and maintain consistent production at its Constancia mine.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The ratings could be downgraded if HudBay's cash consumption will be in
excess of our expectations, there is an extended shutdown of its
Constancia mine, or the company's adjusted debt/EBITDA is expected
to be maintained above 4.5x (6.4x LTM Q2/20) and (CFO-
dividends)/ adjusted debt is sustained below 5% (8.5%
LTM Q2/20).
HudBay's ratings could be upgraded if its adjusted debt/EBITDA is sustained
under 3.0x and (CFO- dividends)/ adjusted debt is sustained
above 15% (8.5% LTM Q2/20).
The principal methodology used in this rating was Mining published in
September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Toronto, Ontario, Canada, HudBay Minerals,
Inc. is a mining company mainly focused on copper through its Lalor
mine in Manitoba, Canada and its Constancia mine in Peru.
Revenues in 2019 totaled $1.2 billion.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
This rating is solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jamie Koutsoukis
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653