The credit rating of Yuzhuralzoloto Group of Companies JSC (hereinafter, the Company, the Group, or YGC) is based on the strong market position, since the Group is one of Russia’s leading goldmining companies. The strong business profile assessment stems from the low production costs and a resource base that ensures over 40 years of operations. At the same time, the product diversification assessment is below medium, as the Group is focused solely on goldmining. The Company’s standalone creditworthiness assessments (SCA) is supported by very strong geographic diversification and the high quality of corporate governance, as well as the high assessment for the Concentration on a Single Deposit sub-factor. The rating is constrained by the medium assessments of business size and cash flow.
YGC is one of Russia’s leading gold mining companies. It produced 424,000 ounces of gold in 2021. The Company’s operations span across three Russian regions: the Chelyabinsk Region (AA(RU), outlook Stable), the Krasnoyarsk Krai (AA(RU), outlook Stable), and the Republic of Khakassia. Open-pit mining is the main method applied at more than ten deposits with total proven reserves of 11 mln ounces as per the JORC Code. The Company has nine gold recovery plants with a total installed processing capacity of more than 25 mln tons per year.
KEY ASSESSMENT FACTORS
The strong business profile reflects YGC’s strong position in terms of the Production Costs sub-factor. The Group’s production costs are in the second quintile of the global cost curve. The Group’s score is high in the Resource Base Sufficiency sub-factor because the current production volume, its proven and estimated reserves will last for over 40 years of operating activity. Moreover, in order to expand its resource base, the Group invests heavily in exploration. Since the Company focuses exclusively on gold production, the Product Diversification sub-factor is also assessed at below medium.
ACRA notes the very strong assessment of geographic diversification of the Company’s sales, as well as geographic and operational diversification of its assets. The Group exports gold, and also has the opportunity to sell it on the domestic market, choosing the best market conditions. The Group’s largest operating asset accounts for no more than 30% of consolidated production volume.
The high assessment of the quality of corporate governance is the result of the clear strategic guidelines for the Group’s production indicators, expansion of the resource base, and cutting production costs. The high assessment for the Risk Management sub-factor stems from an integrated approach to identifying key risk factors and a proactive risk mitigation policy. The high assessment for the Management Structure sub-factor takes into account certain decisions of the board of directors which were not made in line with the opinion of the key shareholder, which indicates that the Key Person risk is low. The Group Structure sub-factor is assessed as high due to a plain ownership structure and no major related-party transactions. The Financial Transparency sub-factor is assessed as high for the corporate segment in view of regularly prepared IFRS reports, as well as the Company’s plans to enter the public debt market.
The financial risk profile assessment takes into account the medium business size (absolute FFO before net interest and taxes is less than RUB 30 bln), very high profitability (FFO before interest and taxes margin was 45% in 2021 vs. 47% in 2020), low leverage assessment (the ratio of total debt to FFO before net interest was 2.1x in 2021 vs. 1.3x in 2020, and by the end of 2022, it is expected to be 3.0x/2.0x including/excluding guarantees), and very high coverage assessment (the ratio of FFO before net interest to interest was 15.3x in 2021 vs. 17.6x in 2020, and is expected to reach 10.1x by the end of 2022). Cash flow is assessed as medium due to the low ratio of FCF to revenues (less than 5%) and the high ratio of capex to revenues (over 20%). YGC’s liquidity is very high due to a significant amount of undrawn credit facilities.
key assumptions
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Yearly average price for 1 ounce of gold at USD 1,840 in 2022, USD 1,730 in 2023, and USD 1,660 in 2024;
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Production volumes in line with the Company’s business plan;
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Capex as per the Company’s business plan;
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No dividend payments in the forecast period (2022–2024);
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Sufficiency of the resource base and the number of years of residual operating activity were calculated based on the Company’s additional data on reserves (P&P).
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- The yearly value of FFO before net interest and taxes exceeding RUB 30 bln along with the FCF margin exceeding 5% and the ratio of capex to revenues declining below 20%.
A negative rating action may be prompted by:
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Coverage (ratio of FFO before net interest to net interest) declining below 10.0x;
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Leverage (ratio of total debt to FFO before net interest) exceeding 3.5x (excluding guarantees).
RATING COMPONENTS
Standalone creditworthiness assessment (SCA): aa-.
Support: none.
ISSUE RATINGS
No outstanding issues have been rated.
regulatory disclosure
The credit rating has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations Under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
A credit rating has been assigned to Yuzhuralzoloto Group of Companies JSC for the first time. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by Yuzhuralzoloto Group of Companies JSC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited, and Yuzhuralzoloto Group of Companies JSC participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to Yuzhuralzoloto Group of Companies JSC. No conflicts of interest were discovered in the course of credit rating assignment.
