Rating Action: Moody’s changes Taseko’s outlook to stable; affirms Caa1
Global Credit Research – 27 Aug 2020
Toronto, August 27, 2020 — Moody’s Investors Service, (“Moody’s”) revised the rating outlook for Taseko Mines Limited (“Taseko”) to stable from negative. At the same time, Moody’s affirmed Taseko’s Corporate Family Rating (CFR) at Caa1, its Probability of Default Rating at Caa1-PD and its senior secured note ratings at Caa1. The company’s Speculative Grade Liquidity Rating (“SGL”) is unchanged at SGL-4.
“The outlook revision to stable reflects our expectation the company will generate marginally positive free cash flow as copper prices have strengthened,” said Jamie Koutsoukis, Moody’s Vice President, Senior Analyst.
Affirmations:
..Issuer: Taseko Mines Limited
…. Corporate Family Rating, Affirmed Caa1
…. Probability of Default Rating, Affirmed Caa1-PD
….Senior Secured Regular Bond/Debenture, Affirmed Caa1 (LGD4)
Outlook Actions:
..Issuer: Taseko Mines Limited
….Outlook, Changed To Stable From Negative
RATINGS RATIONALE
Taseko’s Caa1 corporate family rating is constrained by the company’s concentration of cash flows from one metal (copper) at a single mine (Gibraltar), variability in grade and costs due to mine sequencing, and high leverage (5.0x LTM Q2/20). The company benefits from its mine location in a favorable mining jurisdiction (Canada) and long reserve life (19 years). We expect there to be some volatility in Taseko’s metrics, as changes in ore grade, strip ratio, copper prices, and the Canadian/US exchange rate can substantively change leverage.
Taseko is exposed to environmental risks typical for a company in the mining industry. This includes, but is not limited to wastewater discharges, site remediation and mine closure, waste rock and tailings management, and air emissions. The company is subject to environmental laws and regulations in the areas in which it operates.
Taseko’s liquidity is weak over the next 12 months (SGL-4). Taseko had CAD64 million in cash and equivalents at June 30, 2020, against Moody’s expectation that the company will have marginal free cash flow during this period (using a $2.50/lb copper price sensitivity, after deducting capex and stripping costs). The company does not have a credit facility. Taseko has no debt maturities until June 2022.
The stable outlook reflects our expectation that Taseko will maintain copper equivalent production at about 110 million lbs/year and the company will generate marginal free cash flow during the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if it becomes more likely that Taseko will not be able to refinance its debt prior to the June 2022 maturity, the company experiences operating challenges at Gibraltar, or if liquidity weakens.
Taseko’s CFR could be upgraded if there the company is able to generate sustained positive free cash flow, demonstrate stability in its credit metrics. An upgrade would also require that the company generate a positive EBIT margin (-10% LTM Q2/20) and maintain total adjusted debt/EBITDA below 5x (5x as LTM Q2/20).
The principal methodology used in these ratings was Mining published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Headquartered in Vancouver, Canada, Taseko Mines Limited operates Gibraltar, an open-pit copper and molybdenum mine located in British Columbia (BC), Canada, producing about 130 million pounds/year. Gibraltar is an unincorporated joint venture, 75% owned by Taseko and 25% owned by Cariboo Copper Corp. (a Japanese consortium). The Company also owns the New Prosperity gold-copper (BC), Aley niobium (BC), Florence copper (Arizona) and Yellowhead copper-gold-silver (BC) projects. Revenues in 2019 were CAD330 million.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Jamie Koutsoukis Vice President - Senior Analyst Corporate Finance Group Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Donald S. Carter, CFA MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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