OREANDA-NEWS. Fitch Ratings has published metals and mining conglomerate China Minmetals Corporation's (Minmetals) Long-Term Foreign Currency Issuer Default Rating (IDR) and senior unsecured rating at 'BBB+'. The Outlook on the IDR is Stable.

Fitch has also assigned Minmetals' proposed US dollar notes an expected rating of 'BBB+(EXP)'. The notes are to be issued by indirect subsidiary Minmetals Bounteous Finance (BVI) Limited, and unconditionally and irrevocably guaranteed by Minmetals. The notes are rated at the same level as Minmetals' senior unsecured debt rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company.

The final rating on the proposed notes is contingent upon the receipt of documents conforming to information already received. Net proceeds from the issue will mainly be used for general corporate purposes.

KEY RATING DRIVERS

Ratings Linked to Sovereign: Minmetals is rated at three notches below China's sovereign rating (A+/Stable) in line with Fitch's top-down approach in its Parent and Subsidiary Linkage rating criteria. This reflects Minmetals' strong operational and strategic ties with the Chinese government in securing overseas natural resources, and its position in ensuring the security of China's supplies of key commodities, including copper, tungsten, nickel and heavy-weight rare earths. The Stable Outlook reflects Fitch's expectation of China's continued support for Minmetals.

Minmetals is wholly owned by the State-owned Assets Supervision and Administration Commission (SASAC), and is one of the largest metals and mining companies in China with leading positions in the mining, processing and trading of a diverse range of nonferrous metals, ferrous metals and steel products.

Solid Track Record Overseas: Minmetals is one of the oldest metals trading companies in China and it helps to secure resources that are scarce in China from overseas. The company's first acquisition overseas was in 2006, when it bought copper resources in Peru and a bauxite mine in Jamaica. Minmetals has since acquired, developed and operated a number of companies and assets overseas, including Australian miner OZ Minerals Limited in 2009 and Canada-listed Anvil Mining Limited in 2012, which has established its position as the Chinese mining company with the most successful overseas operations.

Support for Las Bambas Acquisition: Minmetals and its consortium received support from the Chinese government for the 2014 acquisition of the Las Bambas copper mine in Peru, one of the world's largest copper projects under development, for a total consideration of USD7.01bn. The support included fast-tracked approvals and favourable financing terms from several Chinese policy banks. Las Bambas is corporate China's largest overseas mining acquisition. The acquisition is of strategic importance to China as more than 80% of the country's total copper consumption is met by imports. The Las Bambas project will account for 15% of China's total copper imports once it reaches full capacity in 2017.

Government Directed Domestic Consolidation: Minmetals has received a significant amount of quality assets from the state since 2004 through capital injections and equity transfers, including 51% stakes in each of leading tungsten producers Hunan Nonferrous Metals Corporation Limited and Jiangxi Tungsten. The company has had assets in resources, construction, smelting, processing, mining science, and technology transferred to it.

Acquisition Capex Drives Leverage: Minmetal's leverage is considered high with FFO adjusted net leverage reaching 10.5x in 2014 (2013: 5.6x), mostly driven by debt associated with the acquisition of the Las Bambas copper project. Fitch does not expect meaningful deleveraging in the next 12-18 months due to significant capex required to bring the project into production in 2016.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- Copper price of USD6,000 a tonne for 2015 and 2016, USD6,500 a tonne for 2017 and thereafter;
- Zinc price of USD2,200 a tonne for 2015, USD2,300 a tonne for 2016 and 2017, and USD2,100 a tonne thereafter;
- Nickel price of USD15,000 a tonne for 2015, USD16,500 a tonne for 2016, USD18,000 a tonne for 2017, and USD19,000 a tonne thereafter;
- Total capex of close to CNY30bn in 2015-16

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Positive rating action on the Chinese sovereign
- Strengthening linkages between Minmetals and the Chinese sovereign

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Negative rating action on the Chinese sovereign
- Weakening linkages between Minmetals and the Chinese sovereign.