S&P rates Exxaro zaA-/zaA-2, SA remains risk
JOHANNESBURG (miningweekly.com) – Ratings agency Standard & Poor’s (S&P’s) said this week that coal miner Exxaro Resources’ exposure to country risk in South Africa was constraining the current South Africa national scale ratings.
The rating agency cited risks such as a steep hike in wages, social unrest and strikes in the mining industry.
“We understand that the South African government is currently discussing a potential change in the country's Mining Charter, with implications for the iron-ore and coal sectors,” it said in a statement.
S&P’s assigned Exxaro long- and short-term South Africa national scale ratings of zaA-/zaA-2, assessing Exxaro's business risk profile as "fair" and its financial risk profile as "intermediate".
The ratings agency noted that its assessment of Exxaro's business risk profile as fair reflected the company's strong market position in the coal industry, where the company sells most of its output to State-owned power utility Eskom under long-term agreements.
While Exxaro's minority stake in Sishen Iron Ore Company provided some product diversification, the dividends earned from this unit would likely become more volatile, as iron-ore prices slide to $110/t or $100/t during the next 18 to 24 months.
“We believe that [parent company] Kumba Iron Ore will need to increase its capital expenditure to support the current production level,” the company said.
S&P’s said should Exxaro increase its stake in titanium ore and titanium dioxide producer Tronox and gain control over time, it would have “positive implications” for the group’s risk profile; however, the financial impact would likely be negative.
“We understand that a decision by Exxaro to gain more control of Tronox or inject equity into Tronox to fund its growth plans may result in higher adjusted debt and less comfortable credit metrics at the current ratings,” S&P’s added.
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