Hong Kong, August 13, 2020 -- Moody's Investors Service has assigned a Ba1 corporate family rating
to Zijin Mining Group Company Limited (Zijin) and has withdrawn the company's
Baa3 issuer rating.
At the same time, Moody's has downgraded the rating on the backed
senior unsecured bond issued by Zijin International Capital Company Limited
to Ba1 from Baa3.
The ratings outlook has been changed to stable.
This rating action concludes the review for downgrade initiated on 10
June 2020.
"The downgrade reflects Zijin's acquisitive strategy and the expected
weakening in its financial profile over the next one to two years,
following multiple acquisitions in 2020," says Kaven Tsang,
a Moody's Senior Vice President.
RATINGS RATIONALE
Zijin's Ba1 corporate family rating reflects the company's
(1) leading scale and market position as a major Chinese producer of gold,
copper and zinc in China; (2) diversified business portfolio in terms
of metals and geographies; (3) profitable mining operations with
a competitive cost advantage; and (4) strong access to funding backed
by its indirect ownership by Shanghang County government in Fujian province,
and its importance to China's metals and mining industry.
However, Zijin's rating is constrained by its increasing leverage
due to its aggressive financial policy as illustrated by frequent acquisitions,
its exposure to metal price volatility, and growing project execution
risk and geopolitical risk.
Zijin's pursuit of growth through acquisitions has been more aggressive
than Moody's previously expected and has pressured its financial
profile. So far in 2020 it has completed or announced the acquisition
of Continental Gold Inc. for RMB7 billion in March, Tibet
Julong Copper Co., Ltd. for RMB3.9 billion
in July, and Guyana Goldfields Inc. for RMB1.7 billion,
currently in process.
Moody's estimates that the acquisition costs and additional related
capital expenditures will be mostly funded by debt and cash on hand.
As a result, Moody's expects Zijin's debt/EBITDA will
rise above 4.5x in 2020 from 3.5x in 2019, and will
stay at this elevated level in 2021 absent material deleveraging initiatives.
Such leverage level better positions Zijin at the Ba1 rating level.
Moody's expects Zijin's planned convertible bond issuance
of up to RMB6 billion will have limited effect on its leverage,
given the modest size of the issuance and the uncertainties on timing
and conversion ratio from the convertible bond. Moody's treats
the convertible bond as debt.
In addition, Moody's expects Zijin will face growing project
execution and geopolitical risk as it expands through acquisitions both
domestically and overseas.
Despite Zijin's solid track record of developing mining assets in
China and globally, the complexity of executing multiple large mining
projects across different jurisdictions at the same time may lead to project
delays and budgets overrun.
Moody's expects Zijin will slow its acquisitions as it focuses on
developing mining projects on hand over the next 12-18 months.
With the production ramp up of the acquired mining assets, the expected
growth in earnings and cash flow will help fund Zijin's projected
additional capital expenditure and contain its debt growth, supporting
its stable rating outlook.
In terms of environmental, social and governance (ESG) factors,
the mining industry has high exposure to environmental risks as well as
tightening regulations. However, Zijin has a good track record
of environmental compliance, including established procedures to
comply with regulations and to monitor pollutants released into the air,
water, and soil during production.
Zijin is exposed to social risks associated with the mining industry,
including health and safety, and responsible production.
The company adheres to a "zero work fatality, zero occupational
disease and zero environmental accidents" goal during its production.
Zijin also carries out poverty alleviation projects in areas near the
operations of its subsidiaries.
In terms of governance consideration, Zijin has an aggressive growth
strategy and financial policy as evidenced by its recent multiple acquisitions
that were partially funded by debt. Today's rating action
reflects the impact on the company's financial profile arising from
this acquisitive strategy. As a dual-listed entity on the
Shanghai Stock Exchange and the Stock Exchange of Hong Kong, Zijin
has adequate information transparency and financial disclosure.
The stable outlook reflects Moody's expectation that Zijin will
focus on developing its acquired mining assets and ramp up production
according to plan without major delays, such that its credit metrics
will remain largely stable in the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the ratings if Zijin (1) shows prudence in its capital
expenditure and acquisitions; (2) enhances its production scale while
successfully managing project execution and geopolitical risks; and
(3) improves its credit metrics, such that adjusted debt/EBITDA
falls below 3.5x on a sustained basis.
Moody's could downgrade the ratings if (1) Zijin stays acquisitive,
pressuring its financial position; (2) there is a material decline
in revenues or profits due to operating, geopolitical, or
environmental issues; (3) the Shanghang County government loses its
position as the largest shareholder, weakening the company's access
to funding; or (4) credit metrics deteriorate, such that adjusted
debt/EBITDA exceeds 5.0x with a low likelihood of deleveraging
over the next 12-18 months.
The principal methodology used in these ratings 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.
Zijin Mining Group Company Limited is one of the largest and most diversified
metals and mining companies in China. It is primarily engaged in
the exploration and mining of gold, copper, zinc and other
metal minerals, supplemented by refining, processing and sales
of related products. The company also has other mining-related
businesses such as research and development, construction,
trade and finance.
Zijin generated revenue of RMB136 billion in 2019 and reported total assets
of RMB123.8 billion as of year-end 2019.
The local market analyst for these ratings is Jin Wu, +86 (212)
057-4090.
REGULATORY DISCLOSURES
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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.
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Kaven Tsang
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
