Fitch Ratings has affirmed
The Outlook is Stable.
Zhaojin Mining's ratings are derived from our internal assessment of the consolidated credit profile of its immediate parent,
The Stable Outlook reflects our expectation that Zhaojin Mining's operations will be sustainable with continued operational and management support from
Key Rating Drivers
Parent's Strong State Linkage: We assess
'Strong' Implications of Default: We assess the socio-political implications of a default by
'Strong' Parent-Subsidiary Linkage: Zhaojin Mining is 34.74% owned by
Normalised Production: Zhaojin Mining's mine-produced gold rose to 19 tonnes in 2022, from 13 tonnes in 2021 when production was interrupted by safety inspections and rectifications. As a result, revenue increased 15% yoy in 2022. We expect low-single-digit revenue growth in 2023 amid stable gold prices and output. However, we expect output to pick up from 2025 as the company expects the Haiyu gold mine to start operating in 2025 and ramp up to full capacity, with annual output of 15 tonnes, in around three years.
Sustained High Profitability: The company's strong profitability stems from its high-quality assets, which are in the second quartile on the global cost curve. Its EBITDA margin dropped to 30% in 2022, from a historical average of around 40%, due to higher input costs such as electricity and mining costs. We expect input costs to normalise and the margin to improve to over 35% in 2023.
High Leverage, Comfortable Coverage: Zhaojin Mining's 'b+' Standalone Credit Profile is constrained by its high leverage. Net leverage, measured by total net debt with equity credit/operating EBITDA, dropped slightly to 8.8x in 2022, from 9.4x in 2021. We expect net leverage to fall to below 8.0x in the medium term but remain above 7x on average. However, EBITDA interest coverage remained healthy at 2.6x in 2022 (2021: 2.5x) and we expect an improvement to over 3x in 2023, supported by low funding costs.
The elevated leverage is driven by large capex for the Haiyu gold mine project. The company's expectation that the mine will commence production in 2025 means capex requirements should drop starting 2026, helping the company deleverage in the longer term.
Derivation Summary
Zhaojin Mining's rating is derived from the credit profile of
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Revenue to remain at around
EBITDA margin of over 35% in 2023-2025, supported by increasing volume and decent cost position;
Capex of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upward revision in Fitch's internal assessment of the creditworthiness of Zhaoyuan
Increase in the likelihood of support from the Zhaoyuan government
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downward revision in Fitch's internal assessment of the creditworthiness of Zhaoyuan
Weakening likelihood of support from the Zhaoyuan government
Weakening linkages between
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: Zhaojin Mining had around
Zhaojin Mining's cash-to-short-term debt ratio has been low for the past four years. However, the company was able to continuously refinance its short-term debt and had sufficient unused credit facilities. Chinese state-owned enterprises generally rely heavily on short-term financing due to their cheaper funding costs. Therefore, we believe their liquidity is adequate. Zhaojin Mining also has access to offshore equity markets and domestic and offshore bond markets, and maintains satisfactory relationships with major domestic financial institutions.
Issuer Profile
Zhaojin Mining is the largest gold miner in the city of Zhaoyuan in the east of
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Zhaojin Mining's ratings are derived from our internal assessment of the consolidated credit profile of its immediate parent,
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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