2:10 PM ET on Thursday Oct 07, 2010 by Thomson Reuters
(The following statement was released by the rating agency)
-- We are affirming our 'B+' long-term corporate credit rating on Denver, Colo.-based Thompson Creek Metals Co.
-- We are also assigning our 'BB' issue-level rating, with a '1' recovery rating, to the company's proposed US$300 million senior secured revolving credit facility. The '1' recovery rating indicates our expectation of very high (90%-100%) recovery in the event of default.
-- The stable outlook reflects our view that Thompson Creek will generate credit metrics that are solid for the rating given the company's weak business risk profile, with adjusted debt to EBITDA of less than 2x, assuming stable molybdenum prices and production costs.
Oct 7 - Standard & Poor's Ratings Services today said it affirmed its 'B+' long-term corporate credit rating on Denver, Colo.-based Thompson Creek Metals Co . The outlook is stable. At the same time, we assigned our 'BB' issue-level rating, with a '1' recovery rating, to the company's proposed US$300 million senior secured revolving credit facility. The '1' recovery rating indicates our expectation of very high (90%-100%) recovery in the event of default. (For the complete credit rating rationale on Thompson Creek, see the research report, to be published on RatingsDirect on the Global Credit Portal, immediately following this media release.) "The ratings on Thompson Creek reflect what we view as the company's weak business risk profile, highlighted by very limited operating diversity, volatile molybdenum prices, and the capital-intensive nature of its operations," said Standard & Poor's credit analyst Donald Marleau. "Partially offsetting these factors, in our opinion, are the company's relatively attractive cost profile, long reserve lives at its two operating mines, and good credit protection measures," Mr. Marleau added. Thompson Creek produces molybdenum, which is used primarily to produce steel and stainless steel alloy. Standard & Poor's expects the company to produce 29 million-32 million pounds of molybdenum in 2010 from its two operating mines in the U.S. and Canada. By acquiring Terrane Metals (not rated), Thompson Creek has added the construction-ready Mt. Milligan copper and gold development project in British Columbia to its business. While the project will require more than C$900 million in capital in the next several years, we believe that completion of the mine should improve Thompson Creek's operating diversity, which is a key constraint on the rating. Standard & Poor's considers Thompson Creek's financial risk profile to be significant, as we believe the company will generate substantial negative free operating cash flow in the next several years as it completes more than US$1 billion of expansionary capital expenditures. The company's acquisition of Terrane Metals was financed with existing cash balances and equity. The stable outlook reflects our view that Thompson Creek will generate credit metrics that are solid for the rating given the company's weak business risk profile, with adjusted debt to EBITDA of less than 2x, assuming stable molybdenum prices and production costs. Furthermore, we estimate that the company's free cash burn in the next several years will be funded with existing sources of liquidity. The ratings could come under pressure if Thompson Creek's large capital expenditure program contributes to an accelerated free cash burn, with liquidity declining to less than US$250 million. We believe that such a scenario would coincide with an unexpected decline in molybdenum prices to about US$10 per pound for a sustained period. We could consider a positive rating action as the company executes its growth plans, thereby adding to its operating diversity without compromising its solid financial risk profile. Our current ratings on Thompson Creek incorporate the expectation that the proposed US$300 million senior secured credit facility will be completed as planned. RELATED CRITERIA AND RESEARCH
-- Key Credit Factors: Methodology and Assumptions On Risks in The Metals Industry,June 22, 2009
-- Standard & Poor's Revises Its Approach To Rating Speculative-Grade Credits, May 13, 2008
-- 2008 Corporate Criteria: Our Rating Process, April 15, 2008
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Primary Credit Analyst: Donald Marleau, CFA, Toronto (1) 416-507-2526;
donald_marleau@standardandpoors.com Secondary Contact: Marc Ahlers, Toronto (1) 416-507-2585;
marc_ahlers@standardandpoors.com (New York Ratings Team)
Source:
https://research.tdwaterhouse.ca/research/public/...ey=1314-WNA1510-1
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