Fitch Ratings has affirmed the long-term foreign currency issuer default rating (IDR) of Kazakhstan's state-owned uranium miner Kazatomprom at 'BBB-' with a stable outlook. The company's short-term IDR were affirmed at 'F3', the ratings agency said on December 5.
The affirmation reflects Fitch’s expectations that the miner will maintain its 2016-2019 financial profile within the agency’s guidelines for the current rating level, regardless of a drop in uranium prices and credit metrics deterioration in 2018-2019.
The average uranium oxide spot prices decreased to USD26.9 per pound in the first ten months of 2016, from USD36.7, and plunged to a 12-year low of USD18.5 in November 2016. The agency expects only a marginal increase to slightly above USD20 per poind by 2019 on the back of uranium oversupply. A continued decline in uranium prices would have a lasting negative impact on Kazatomprom's earnings, Fitch warns.
Despite the continued pressure on uranium prices and its recent drop, the agency projects Kazatomprom's EBITDA to remain strong in 2016 at about the 2015 level, but to drop significantly in 2017-2018. “However, we expect the company's credit metrics to remain commensurate with the 'BBB-' rating,” Fitch said. Kazatomprom reported EBITDA of KZT60bn in the first half of 2016, up from KZT22bn in the same period last year.
The agency also believes the company’s dividends from joint ventures will increase to about KZT70bn on average from the average of KZT32bn over 2012-2015. As such, dividends will remain the main driver of consolidated uranium production growth in the short to medium term, Fitch argues. After 2017, however, dividends are expected to weaken on low uranium spot prices and strengthening local currency.
Kazatomprom's debt was denominated in foreign currencies at the end of June. The agency accesses the company's FX exposure as manageable. “However, we monitor the dynamics of the Kazatomprom's off-balance sheet obligations and estimate that its FFO adjusted leverage ratio for 2015 would have been about 0.7x higher, if all off-balance sheet obligations were included in the leverage ratio calculations,” Fitch noted. “At end-9M16, the company had outstanding financial guarantees of USD75m (KZT25bn), expiring over 2018-2024.”
Fitch also said that Kazatomprom's low investment-grade rating continues to be primarily driven by its leading position in global uranium mining, competitive cash costs compared to global mining peers, a relatively stable operating profile and contracted uranium sales volumes over the medium term.
Kazatomprom is the largest uranium mining company worldwide. It benefits from high barriers to entry, as the industry requires special certification and licensing, with long lead times and specialised expertise.
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