Hong Kong, July 20, 2018 -- Moody's Investors Service has assigned a first-time Baa3 issuer
rating to Zijin Mining Group Company Limited.
The rating outlook is stable.
RATINGS RATIONALE
"Zijin's Baa3 issuer rating reflects the company's large scale and
leading position as one of the major producers of gold, copper and
zinc in China, its profitable mining operations with competitive
cost advantages, its diversified metal products and geographic locations,
its relationship with the Shanghang County Government and its good access
to funding," says Kaven Tsang, a Moody's Vice President
and Senior Credit Officer, also Moody's International Lead
Market Analyst for Zijin.
Zijin's scale -- as measured by revenues and EBITDA --
is comparable to that of some Baa3-rated global metal mining peers.
The company is ranked among the top 3 metal mining companies in China
in terms of production volumes. Its annual production of gold accounted
for 10% of China's (A1 stable) gold production in 2017,
and for 13% and 8% of total copper and zinc production,
respectively.
Zijin has competitive operating costs in its upstream mining operations,
enabling it to maintain profitable operations throughout the cycles.
Its upstream mining operations registered a gross margin of 46%
in 2017, which was high relative to its metal mining peers in China
and comparable with its global mining peers.
The company's ability to maintain competitive operating costs even
in down cycles is the result of (1) its ability to acquire mining assets
at low costs; (2) its large production scale; and (3) its strong
mining operations and experience in the exploration and production of
particularly low grade metal ores in China.
Zijin partially hedges commodity metal price risk through diversified
metal products and through its integrated operations, which cover
upstream mining, trading and retail products.
The company produces a range of mineral products and its gross profit
was contributed by gold (25%), copper (34%),
zinc (22%), as well as by silver, iron ore, lead,
tungsten, tin and others (19%) in 2017. This product
diversity reduces the company's reliance on any single commodity.
Zijin's mining operations are also geographically diversified.
At year-end 2017, Zijin had a total of 226 mining rights
and 188 exploration rights in 18 provinces in China and 9 other countries.
Moody's expects Zijin's operations will continue to benefit
from its 25.8% ownership by the Shanghang County,
Fujian Province, which supports its access to the domestic funding
markets.
Zijin has broad banking relationships and has been granted credit facilities
from the two national policy banks, the big four national banks,
and the national joint-equity commercial banks.
Zijin is also able to raise funds from the domestic bond market,
and has a good track record of issuing bonds at competitive coupon rates
through down cycles.
Moreover, the People's Bank of China has authorized Zijin
to act as an importer of gold into China due to its key supplier position
in China's gold industry.
In addition, the company has a track record of receiving various
forms of government subsidies in excess of RMB1.7 billion since
2008.
However, the Baa3 issuer rating is constrained by the company's
exposure to volatile metal prices, financial risk from growth through
debt-funded acquisitions, and the associated execution and
geopolitical risks.
Zijin's financial performance is exposed to fluctuating gold and
base metal prices. For example, Zijin's mining operations
reported gross margins of 39% and 38% in 2015 and 2016,
respectively, when commodity prices were low, and returned
to 46% in 2017 after metal prices improved.
Zijin's expansion has been achieved partly through debt-funded
acquisitions. The associated incremental financial risk is somewhat
mitigated by the company's prudent financial management and its
ability to improve its EBITDA through higher production. It demonstrated
a track record of deleveraging between 2015 and 2017, when debt
leverage -- as measured by adjusted debt/EBITDA --
fell to 2.9x from 6.2x.
The company achieved such deleveraging by debt reduction through equity
issuance of RMB4.6 billion in 2017 and improved operating cash
flow from higher production levels of copper and zinc.
Zijin's overseas expansion raises project execution and geopolitical
risks. In 2017, more than half of its production from gold
mining and about a third of its production from zinc mining were realized
overseas. Moody's expects Zijin's geopolitical risks
will likely increase as it develops its overseas mining assets over the
next few years, such as the Kamoa copper mine in the Democratic
Republic of Congo.
Moody's expects Zijin's EBITDA will reach about RMB14-RMB15
billion over the next 12-18 months, as the company's
gold and zinc production from mining will likely only modestly increase
during 2018-2020.
However, Zijin's copper production from mining should increase
significantly to 360,000 tons in 2020 from 208,000 tons in
2017, driven mainly by the strong contribution of the Zijinshan
Mine, the Duobaoshan copper mine, and Commus SASAS.
Accordingly, Zijin's debt leverage -- as measured by
debt/EBITDA -- will be in the range of 2.5x-3.0x
over the next 12-18 months, supporting the company's
Baa3 issuer rating.
The stable outlook reflects Moody's expectation that Zijin will
remain prudent in its acquisitions and financial management, and
carefully manage execution and geopolitical risks as it expands overseas.
Upward rating pressure could emerge if Zijin (1) enhances its business
scale and market positions; (2) shows prudence in its capital expenditure
and acquisitions; and (3) further improves its credit metrics,
such that adjusted debt/EBITDA falls below 2.0x on a sustained
basis.
On the other hand, downward rating pressure could emerge in case
of (1) a material decline in revenues or profits arising from operating,
geopolitical, or environmental problems; (2) aggressive expansion
which could stress the financial position of the company; (3) the
Shanghang County government in Fujian losing its position as the largest
shareholder, which could impair the company's operational
benefits, the right to import gold or access to banking facilities;
or (4) deteriorating credit metrics, such that adjusted debt/EBITDA
exceeds 3.5x-4.0x with a low likelihood of deleveraging
over the next 12-18 months.
The principal methodology used in this rating was Mining Industry published
in April 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Zijin Mining Group Company Limited is engaged in the exploration and mining
of gold, copper, zinc and other metal mineral resources,
as well as in the refining, processing and sales of related products.
The company also has other mining-related businesses, such
as research and development, construction, and trade and finance.
Zijin is listed on both the Hong Kong Stock Exchange and Shanghai Stock
Exchange. At the end of 2017, Zijin was 25.88%
owned and controlled by Minxi Xinghang State-owned Asset Investment
Company Limited, a local SOE in Shanghang County, Fujian Province.
Zijin reported total assets of RMB89.3 billion and total revenue
of RMB94.5 billion for 2017.
The Local Market analyst for this rating is Jin Wu, +86 21
20574021.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
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this announcement provides certain regulatory disclosures in relation
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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
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For any affected securities or rated entities receiving direct credit
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to rated entity, Disclosure from rated entity.
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for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Kaven Tsang
VP - Senior Credit Officer
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
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
