May 8 (The following statement was released by the rating agency)
Fitch Ratings has assigned Nord Gold N.V's (Nord Gold) USD500m issue of 6.375% notes due May
2018 a final senior unsecured 'BB-' rating.
The rating action follows a review of the final documentation materially
conforming to the draft documentation reviewed when Fitch assigned an expected
'BB-(EXP)' rating on 23 April 2013.
A full list of ratings is at the end of this release.
Nord Gold is a medium-sized gold producer with mining operations in Russia,
Guinea, Burkina Faso and Kazakhstan. The company was spun-off from OAO Severstal
(BB/Stable) in 2012.
KEY RATING DRIVERS
The notes are unconditionally and irrevocably guaranteed by Societe Miniere de
Dinguiraye (Guinea), JSC FIC Alel (Kazakhstan), Neryngri-Metallic LLC (Russia),
and CJSC Mine Aprelkovo (Russia), operating companies of the group, and by High
River Gold Mines Limited (Canada), a holding company that owns the group's
operating companies in Russia and Burkina Faso.
Acceptable Mine Life and Reserve Quality
At 1 January 2013, the company had control of 12.6moz of gold reserves with an
average mine life of approximately 18 years based on output of 717koz of gold in
2012. This places Nord Gold as a small-to medium sized mining company in global
terms. The quality of ore reserves at Nord Gold's deposits at an average gold
grade of 1.1g/t according to the latest available JORC report, is close to the
upper end of international peers, which average 0.8g/t -1.2g/t.
Well-diversified Portfolio of Assets
The company's gold reserves are well diversified geographically and by number of
mines. In 2012, the company operated eight mines; the company's largest mine,
Lefa, provided less than 24% of the total company's gold output. The launch of
the Bissa mine in Burkina Faso in January 2013 further enhanced the company's
operational diversification. While Nord Gold does not have an excessice exposure
to any of the four countries in which it operates (Russia, Burkina Faso, Guinea
and Kazakhstan), each of these jurisdictions is viewed by Fitch as having higher
country risk relative to mining operations.
Increasing Cash Costs
The company's increasing cash costs - which rose 22% to USD836/oz in 2012 -
present risks as they are higher than the global average. However, the agency
expects an improvement in the company's cost position in 2013 due to the
implementation of a cost-saving programme with targeted savings of more than
USD83m (13% of the company's cost of goods sold excluding depreciation and
amortisation in 2012), and the launch of the lower-cost Bissa mine.
Limited Track Record of Organic Growth
Fitch positively views the company's change of focus from acquisitive growth to
an organic growth strategy. Given that 25% of Nord Gold's resources are at a
development/exploration stage Fitch views that the company will be able to keep
output stable in the medium term. However, the company has a comparatively
limited track record of new project development with Bissa the only new mine
that has been launched.
DEBT AND LIQUIDITY
Fitch expects neutral free cash flow (FCF) in 2013 and negative FCF in 2014-2015
due to high project development costs. This is expected to see leverage increase
with funds from operations (FFO) adjusted gross leverage rising to 1.8x by
end-2013 and 2.0-2.2x during 2014-2015 (FYE12: 1.4x).
The liquidity position of the company at end-2012 was strong with USD45m of cash
and USD430m of unutilised committed bank loans compared with USD262m of
short-term borrowings. The issued notes will allow refinancing of short-term
borrowings, which will further strengthen the company's liquidity position.
Positive: Future developments that could lead to positive rating actions
- FFO adjusted gross leverage falling sustainably below 1.5x
- EBITDAR margin rising above 30% on average through the commodity price cycle
(32.8% in 2012)
Negative: Future developments that could lead to negative rating action include:
- FFO adjusted gross leverage rising sustainably above 3.0x
- EBITDAR margin falling sustainably below 20%
FULL LIST OF RATINGS
Long-Term foreign currency Issuer Default Rating (IDR): 'BB-'; Outlook Stable
Short-Term foreign currency IDR: 'B'
Foreign currency senior unsecured rating: 'BB-'
Long-term local currency IDR: 'BB-'; Outlook Stable
Senior unsecured rating to USD500m 6.375% 2018 notes: assigned at 'BB-'