Fitch Affirms Molymet's IDRs at 'BBB'; Outlook Stable

Fitch Ratings has affirmed Molibdenos y Metales S.A.'s (Molymet) foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' and national scale ratings at 'A+(cl)', 'AAA(col)', and 'AA+(mex)', respectively. The Outlook is Stable. A full list of rating actions is shown below.

Solid Business Model Underlines Stable Credit Profile:

Molymet's investment-grade ratings reflect the company's robust capital structure with an average net debt-to-EBITDA ratio of 1.1x from 2010 to 2014. This was mainly achieved by the company's stable tolling and by-products business lines, which accounted for 56% of 2014 EBITDA and provided cash flow stability and visibility from long-term contracts. The company's net debt-to-EBITDA ratio improved to 2.0x in 2014 compared to the peak of 3.3x in 2013, following a USD100 million capital increase in early 2014 and higher processing sales volumes during the rest of the year.

Unwavering Shareholder Commitment:

The company's shareholders demonstrated ongoing commitment to maintaining a conservative capital structure at Molymet with the US100 million equity injection at the beginning of 2014. The additional equity was intended to strengthen the company's capital structure after a year of large investments and challenging market conditions. Molymet's ratings are additionally supported by its leading market position with 35% of the global molybdenum processor market and geographic diversification with production facilities in Chile, Mexico, Belgium, Germany, and China.

Impairment of Molycorp:

Molymet will not post any relevant further deterioration regarding its troubled investment in rare-earths miner, Molycorp, considering the almost full write-off as of Dec. 31, 2014 with only USD17 million of liability exposure remaining on its balance sheet. Molymet reported net losses of USD563 million due to a non-cash and non-recurring accounting loss related to this impairment, with no effect on Molymet's credit profile. Fitch does not expect Molymet to provide cash support to Molycorp going forward.

Comfortable Liquidity Position:

Molymet's strong liquidity position is supported by its stable and predictable cash flow generation and its healthy cash position of USD372 million which compares favorably to its short-term debt of USD108 million, corresponding to a cash-to-short-term debt ratio at 3.4x and cash flow from operations (CFFO) plus cash-to-short-term debt at 3.8x. The company also has access to available lines of credit totaling more than USD1 billion. Molymet has a comfortable amortization schedule further enhanced by the recent amortizing five-year syndicated facility of USD200 million granted in December 2014. The company had USD693 million of total debt at the end of December 2014, which was 70% comprised of bonds issued in Chile and Mexico and the remaining by the syndicated loan.

Strong Operating Results:

Molymet improved its EBITDA by 46% to USD158 million in 2014 compared to USD112 million in the previous year driven by a higher processing capacity resulting in greater tolling and its own sales segment. The latter also benefitted from higher prices. Free cash flow (FCF) was negative USD30 million following capex of over USD57 million and dividends of USD13 million in 2014, compared to FCF of USD6 million following capex of USD58 million and dividends of USD18 million in 2013. Fitch expects lower capex in 2015 following the latest expansionary investment cycle being completed in 2014.

Improvement in Financial Performance Expected:

Fitch forecasts Molymet's revenue generation at around USD960 million during 2015, with EBITDA of approximately USD170 million as a result of increased processing volumes of molybdenum concentrates, and new rhenium contracts at favorable conditions. This compares to EBITDA of USD158 million in 2014. Funds from operations (FFO) are expected to be around USD120 million in 2015 supported by the robust EBITDA generation. Projected lower capex of USD40 million supported by no dividend payments and a working capital inflow should result in FCF of around USD80 million. Following scheduled debt amortizations, Fitch projects an improvement in Molymet's net debt-to-EBITDA ratio to around 1.4x in 2015.

National Equity Rating Rationale:

Molymet's equity rating at level 3 is constrained by its liquidity ratio despite the company's solid financial profile. The company's market presence is at 12.8%, with last year's average volume estimated at USD21.5 million as of April 2015. Molymet's market capitalization was USD991 million as of the same date.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--Molybdenum average prices of USD9.50 lb in 2015 and 2016.

--Rhenium prices of USD1,145 lb in 2015 and USD1,155 lb in 2016

--Sales volumes of 195 million lb in 2015 and 196 million lb in 2016

--Net revenues of USD960 million in 2015 and USD1 billion in 2016

--EBITDA of USD171 million in 2015 and USD173 million in 2016

--Capex of USD39 million in 2015 and USD68 million in 2017

--Dividend payout ratio at 40% of net profits from 2016

--Amortization of Mexican Bond of USD104 million in 2015

--Net debt-to-EBITDA ratio around 1.4x in 2015 and 1.3x in 2016

RATING SENSITIVITIES

A Negative Outlook or rating downgrade could be triggered by a combination of some of the following factors: a loss of major processing clients, a large acquisition that increases net debt-to-EBITDA above 2.5x for sustained period, a substantial loss or weakening of existing tolling contracts, or a long-term increase in leverage throughout the next business cycle. A negative rating action could also follow further financial contributions to Molycorp, an event considered unlikely.

Molymet's ratings are unlikely to be upgraded in the medium term, as even though the company has a market-leading position; it is within the niche industry of molybdenum processing. Greater diversification of its client base and revenue stream into other lines of business combined with a substantial increase in global market share with net debt-to-EBITDA consistently below 1.0x could lead to a Positive Outlook or rating upgrade.

Fitch affirms Molymet's ratings as follows:

--Foreign currency long-term IDR at 'BBB';

--Local currency long-term IDR at 'BBB';

--Senior unsecured debt rating at 'BBB';

--National scale rating at 'A+(cl)';

--National scale rating at 'AA+(mex)';

--National scale rating at 'AAA(col)';

--Senior unsecured rating at 'A+(cl)';

--Certificados Bursatiles at 'AA+(mex)'.

--National Equity Rating Level at 3.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May. 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983584

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