Dec 19 - The 2013 outlook for Latin American metals and mining is stable and
companies are expected to remain profitable despite commodity price
fluctuations, according to a new Fitch Ratings report.
'Metals and mining companies in Latin America mostly exhibit very low leverage,
strong debt and interest coverage ratios, and high levels of liquidity, enabling
them to absorb the impact of price volatility without endangering their credit
profiles during 2013,' said Jay Djemal, a Director at Fitch Ratings.
'Brazilian steel has exhibited the steepest deterioration in credit metrics over
the last year. Challenges affecting profitability over the last two years
include a strong currency, higher steel product import volume, and a rise in raw
material, energy, and labor costs.'
Fitch's mid-cycle copper price assumptions as of September 2012 are USD3.40 per
lb. in 2013, with a long-term price of USD2.72 per lb. in 2014, resulting in an
expected healthy level of profitability over the next two years. Issues to be
faced in 2013 are declining ore grades and increased operating costs, including
labor, materials and energy.
Stand-alone Latin American iron ore mining companies benefit from high iron ore
content at their mines and exhibit strong capital structures resilient to
fluctuations in price and demand. Fitch's 2013 iron ore price assumption is
USD110 per metric ton, with a long-term price of USD90 per metric ton from 2013
onward. These prices are above marginal cost and will allow companies with
high-grade ore content to maintain healthy profitability next year.
Higher operating costs will continue in 2013 for metals and mining. Cost
pressures will increase for power, fuel, labor, operating materials, and
maintenance. Engineering costs have also increased due to a dearth of qualified
mining experts. Cost efficiency programs will help tackle the higher cost
environment in 2013.
For more information, a special report titled '2013 Outlook: Latin American
Metals and Mining' is available on the Fitch Ratings web site at
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2013 Outlook: Latin American Metals