Peruvian miner Volcan's shares receive a rating upgrade

Peruvian rating agency Apoyo & Asociados upgraded the A and B class common shares of local polymetallic miner from ‘4A (pe)’ to ‘3A (pe)’.

The rating means the shares present an acceptable combination of solvency and stability in the issuer's income. The decision follows an improvement in results and the financial adjustments made by Volcan, which began a restructuring process at the beginning of the year.

According to an Apoyo & Asociados report, the ‘3A’ rating is explained by three factors: reduced financing uncertainty, lower pressure on the company's liquidity, and current financial results.

POSITIVES

Apoyo, which is a partner of Fitch Ratings, highlights as a positive point the modification signed by Volcan to the US$400mn syndicated loan contract agreed in 2021. The modifications include an extension of the maturity date until July 2029 and a new payment schedule with US$369mn pending after making a first disbursement of US$34.3mn at the end of June.

The “in August, the private exchange offer of the 4.375% senior notes due 2026 for new 8.750% senior notes due 2030 was made. As of August 22, 2024, Volcan has received valid offers from registered holders, representing approximately 80.74% of its outstanding principal amount,” the report says. The rating agency added that this has improved the debt profile by significantly reducing the pressure on the company's liquidity.

Another positive was Volcan signing this year an advanced purchase agreement for concentrates for US$25mn – money received in 1Q24 – and the sale of two hydroelectric plants for a total of US$78.5mn. It also raised capital of US$48mn as part of the conditions of the sale by Swiss company Glencore of its 23% in Volcan to Argentine company Transition Metals.

According to Apoyo, this meant that Volcan had US$68mn in cash at the end of the first half of the year, 10.3% more than at the end of 2023. However, the rating agency notes that, given the development requirements of the Romina zinc-lead-silver project, approximately US$147mn will have to be allocated to investment expenses (around US$86mn in 2025), which will require additional financing.

EXPECTATIONS

Although the improvement noted by Apoyo & Asociados is significant, no further upward revisions are expected given that the situation at Volcan is still fragile and there is a lot of volatility. At the end of June, the company's ROE was -2.2% for the last 12 months, and this trend is expected to continue for the next two years.

“In the medium term, a significant and sustained improvement in performance, leading to a material reduction in accumulated losses, accompanied by an extension of mine life, could lead to a review of the rating,” the report states.

Last month, Moody’s also upgraded Volcan.