Moody's upgrades Peruvian miner Volcan

Moody's raised the rating of Peruvian polymetallic mining company Volcan for the first time after three consecutive downgrades in 2023 and 2024.

The upgrade from 'Caa3' to 'Caa1' is explained by the reduction in risk following the company's announcement of an agreement to refinance its US$400mn term loan, the first payment on which was due in April but pushed back to June.

Moody's said the new loan will benefit from a guarantee comprising a trust with accounts receivable, shares of subsidiaries, and mortgages on the majority of Volcan’s assets. The company has 12 mines and eight processing plants.

“The term loan will also benefit from a cash sweep mechanism that would allow excess cash above US$70mn to be directed 50% to the repayment of the term loan and 50% directed to fund the expansion of Romina, a polymetallic project with an estimated investment of US$125mn through 2026, on top of around US$20mn,” the agency said in a release. 

On July 24, Volcan announced it signed the modification to the syndicated loan and the maturity date was extended from July 2026 to July 2029. 

Moody’s expects Volcan to generate negative cash flow of US$21mn this year, US$100mn in 2025, and US$45mn in 2026. According to the rating agency, this will be due to higher interest payments and capital expenses linked to the zinc, lead and silver Romina project, which will not provide positive flows until at least 2026.

“We believe that the company will need to incur additional debt to fund the construction of this project with leverage peaking at 3.5x in 2025. Under the company's term loan agreement, Volcan is allowed to increase debt for US$125mn to fund Romina and US$70mn for working capital purposes,” the report states.

Although the move to 'Caa1' is an improvement, the rating is still low – in March 2023 its rating was ‘B1’. Moody’s said the rating still reflects liquidity risks, income volatility due to exposure to commodity prices with high structural costs, and a small economy of scale compared to its global peers.

The agency added that the entry of Argentina’s Transition Metals into Volcan’s shareholding structure, with a 23% stake, is positive for the company.