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Global Credit Research - 05 Apr 2011
Approximately $200 million of rated debt securities affected
New York, April 05, 2011 -- Moody's Investors Service assigned a B3 rating to Taseko Mines Limited's
(Taseko) proposed $200 million senior unsecured notes. Moody's
also assigned a B3 Corporate Family Rating (CFR), a B3 Probability
of Default rating, and an SGL-3 Speculative Grade Liquidity
rating, reflecting adequate liquidity. The rating outlook
is stable. The company intends to use the proceeds from this offering
to fund the third expansion of the Gibraltar mine. This is the
first time that Moody's has rated the debt of Taseko.
..Issuer: Taseko Mines Limited
....Corporate Family Rating, Assigned
....Probability of Default Rating, Assigned
....Speculative Grade Liquidity Rating,
....Senior Unsecured Regular Bond/Debenture,
Assigned B3 (LGD4, 52%)
Moody's ratings for Taseko are constrained by its lack of operational
diversity and the risks associated with its growth plans. At this
time, Taseko is reliant on a single operation, the Gibraltar
mine, and few customers. The company is in the process of
expanding production at Gibraltar for the third time since 2006.
The plan will include the construction of a new concentrator to complement
the existing 55ktpd facility and will increase annual copper production
by 60 million pounds to 170 million pounds in the next few years.
The project will also include a new molybdenum recovery facility,
expected to increase annual production by 1 million pounds to just over
2 million pounds. Nonetheless, a single mine company like
Taseko could have its business severely curtailed with only a single negative
Inherent volatility of copper prices, substantial expansion costs
and resultant higher debt levels are key drivers of the B3 rating.
Risks also include completion and cost overruns associated with the development
and expansion of the mine. Taseko's debt is relatively high compared
to both historical levels and compared to earnings and cash flow.
As Taseko continues to invest in its expansion, it's very
likely that debt will increase (and/or its cash will decrease) over the
near term. Any adverse impact at this time in the development will
magnify the risk posed by its leverage and narrow operating base.
Taseko's strengths include its reserves, the anticipated low cost
of the Gibraltar mine which could lead to strong EBIT margin and interest
coverage, insignificant legacy liabilities, and adequate liquidity
over the near term.
The SGL-3 speculative grade liquidity rating reflects Moody's belief
that Taseko will maintain an adequate liquidity profile over the next
12 months. Although the company does not have access to an external
source of liquidity, such as a secured revolving credit facility,
Taseko's financial policy includes a commitment to maintain a minimum
cash balance of approximately C$100 million on the balance sheet.
After its recent notes offering, the company's cash balance
will likely be C$405 million. Therefore, cash on hand
should be sufficient to cover all cash requirements and negative free
cash during the next 12 months. Furthermore, the company
does not have any financial maintenance covenants, which provides
additional flexibility within its liquidity profile.
The stable outlook is supported by the company's sales strategy,
which includes long-term contracts, and our positive view
on copper fundamentals going forward. The ratings could be revised
upward if Taseko successfully completes its expansion plans and demonstrates
that it can consistently generate positive free cash flow to service its
debt. As more mines make positive contributions to the company's
cash flow, the greater the operational diversity and positive momentum
for the rating. The ratings could come under pressure if the company
experiences a significant production shortfall from targeted levels.
The ratings also could be lowered from higher than expected capital expenditures,
aggressive debt-financed acquisitions, impairment of liquidity
arrangements, or unanticipated shareholder-friendly activities.
The principal methodologies used in this rating were Global Mining Industry
published in May 2009, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Based in Vancouver, British Columbia, Taseko is a mining and
mine development company with one operating mine, Gibraltar,
two advanced stage projects and one exploration project, all located
in British Columbia, Canada. Gibraltar is 75% owned
and operated by Taseko while 25% is owned by Cariboo Copper Corp.
Gibraltar is a large open pit copper mine with 2010 copper production
of 92.3mm pounds and molybdenum production of 941k pounds (100%)
basis. For fiscal year 2010, Taseko generated revenues of
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B3 to Taseko's new notes; outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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