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Rating Action:

Moody's assigns Ba2 rating to Nord Gold SE's proposed senior unsecured notes, affirms Ba2 CFR; outlook stable

25 Sep 2019

London, 25 September 2019 -- Moody's Investors Service ("Moody's") has today assigned a Ba2 rating to the proposed senior unsecured guaranteed notes to be issued by Celtic Resources Holdings DAC and guaranteed by Nord Gold SE's key operating subsidiaries. The outlook on Celtic Resources Holdings DAC is stable. Concurrently, Moody's has affirmed the Ba2 corporate family rating (CFR) and the Ba2-PD probability of default rating (PDR) of Nord Gold SE. The outlook on Nord Gold SE remains stable.

RATINGS RATIONALE

RATIONALE FOR ASSIGNING Ba2 RATING TO THE PROPOSED NOTES

The issuer of the notes - Celtic Resources Holdings DAC - is a designated activity company incorporated under the laws of Ireland. The notes will be guaranteed by Nord Gold SE's subsidiaries, namely its Russian operating companies: Rudnik Taborny LLC (Taborny mine), Berezitovy Rudnik LLC (Berezitovy mine), Neryungri-Metallik LLC (Gross mine), a Kazakhstani operating company JSC FIC Alel (Suzdal mine), Guinean operating company Société Minière de Dinguiraye (Lefa mine); and a Canadian holding company High River Gold Mines Ltd (Buryatzoloto and Berezitovy mines in Russia, Bissa, Bouly and Taparko mines in Burkina Faso). The Notes will be unsecured and unsubordinated obligations of the issuer and will rank equally in right of payment with the issuer's existing and future unsecured and unsubordinated obligations. The consolidated total assets and consolidated total revenues of the guarantors comprise at least ninety per cent of Nord Gold SE's consolidated total assets and consolidated total revenues. Therefore, the noteholders will rely on Nord Gold SE's credit quality to service and repay the debt. Proceeds from the notes will be used to partially repay Nord Gold SE's outstanding indebtedness and for general corporate purposes.

The Ba2 rating of the proposed notes is at the same level as Nord Gold SE's corporate family rating, which reflects Moody's view that the notes will rank pari passu with other unsecured and unsubordinated obligations of Nord Gold SE. The company's debt comprises unsecured bank loans raised at the level of Celtic Resources Holdings DAC and guaranteed by the same companies as the guarantors under the proposed notes. Therefore, there are no material debt instruments that are senior or subordinated to the proposed senior unsecured notes.

RATIONALE FOR AFFIRMING Ba2 CFR AND Ba2-PD PDR

Nord Gold SE's Ba2 CFR factors in the company's (1) operational and geographic diversification, with ten active mines; (2) reserve base dominated by open-pit mines; (3) competitive operating costs resulting in Moody's-adjusted EBITDA margin of sustainably above 35%; and (4) track record of organic growth and good corporate governance.

The rating also takes into account (1) the company's fairly small scale of operations, with gold production of about one million ounces projected for 2019; (2) its exposure to volatility in gold price and local currencies' exchange rates; (3) the heightened business, political and event risks in countries where the company operates, primarily Burkina Faso and Guinea (both unrated); and (4) risks related to the company's concentrated ownership structure, although mitigated by the track record of good corporate governance.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS

Nord Gold SE is exposed to ESG issues typical for a company in mining sector. The environmental risks include but not limited to soil and water pollution as a result of processes and chemicals, in particular cyanide and other hazardous substances, used in gold extraction and production methods. Such risks are generally viewed by Moody's as very high for mining companies. High risks, as viewed by Moody's for mining companies, include water shortages and man-made hazards. Such hazards may include flooding, collapses of walls or shelf at the company's open-pit mines. In 2018, for example, the company experienced a rockslide at the Berezitovy mine resulting in a 49% decrease in the gold production at the Berezitovy mine in 2018 compared with 2017. Following the accident, Nord Gold SE changed the mining plan at the Berezitovy mine and focused on investment in capital stripping activities which resulted in the mine's all-in sustaining costs (AISC) growth to $1,325 per ounce (oz) in 2018 from $766/oz in 2017. This accident had quite a limited impact on the company's financial metrics as Berezitovy mine made up only about 6% of the company's gold production in 1H 2019. Underground mining, which comprised around 10.6% of Nord Gold SE's total gold output in the first half of 2019 (2018: 16.3%), carries its own specific risks such as underground fires, explosions and other accidents resulting from drilling and blasting activities at the underground mine. Leakage from or failure of the company's tailings dams may present another potential risk, but the company regularly inspects its tailings storage facilities and in recent years has put greater emphasis on the risks associated with these facilities.

Nord Gold SE has a concentrated ownership structure, with 99.94% of the company's share capital owned by Mr Mordashov, together with his sons Nikita and Kirill. The risk of concentrated ownership is mitigated by the track record of a balanced financial policy, with moderate gross debt and dividend payouts, as well as via independent directors oversight, with four out of eight board members being independent directors.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's expectation that Nord Gold SE will (1) maintain its leverage at about 2.0x Moody's-adjusted gross debt/EBITDA on a sustainable basis; (2) retain healthy liquidity; and (3) pursue a balanced financial policy, with moderate gross debt and dividend payouts.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Moody's does not anticipate any positive pressure on the ratings to develop over the next 12-18 months, due to the company's fairly small scale of operations and gold output volume, which is likely to remain at around one million ounces per year, and substantial concentration of operations in geographies with heightened business risks (Burkina Faso and Guinea). Over the longer term, positive pressure on the ratings may build up if the company were to (1) reduce its operational concentration in geographies with heightened business risks so that the mines located in such geographies contribute less than 40% of consolidated revenue and EBITDA; (2) retain robust financial metrics reducing AISC to below $950 per ounce; (3) generate sustainable positive post-dividend free cash flow; (4) pursue a balanced financial policy, such that its capital spending and shareholder distributions do not exert pressure on its leverage; and (5) maintain healthy liquidity.

Moody's could downgrade the ratings if the company's (1) Moody's-adjusted gross debt/EBITDA were to exceed 2.5x on a sustained basis; (2) post-dividend free cash flow were to be negative on a sustained basis; or (3) liquidity and liquidity management were to deteriorate materially. A material deterioration in the company's operating performance, caused by possible operational disruptions in geographies with heightened business risks, could also exert negative pressure on the ratings.

PRINCIPAL METHDOLOGY

The principal methodology used in these ratings was Mining published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Nord Gold SE is an established pure-play gold producer, with 10 producing mines and a portfolio of exploration projects in Russia, Guyana, French Guiana and Canada. In the last 12 months ended 30 June 2019, Nord Gold SE produced 929 thousand ounces (koz) of gold (compared with 907 koz in 2018). For the same period, the company generated revenue of $1.18 billion ($1.14 billion in 2018) and Moody's-adjusted EBITDA of $439 million ($464 million in 2018). Alexey Mordashov, together with his sons Nikita and Kirill, controls 99.94% of the company's ordinary shares.

REGULATORY DISCLOSURES

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Denis Perevezentsev, CFA
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

David G. Staples
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
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Client Service: 44 20 7772 5454

No Related Data.
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