Taseko Mines Ltd. Downgraded To 'CCC+' From 'B-' On Liquidity Concerns And Refinancing Risk

  • We believe Taseko Mines Ltd. faces heightened liquidity risk due to the uncertainty about the impact of the COVID-19 outbreak on its operations amid sharply weaker copper prices.
  • The company has significant debt maturing in 2022, and we view its prospects for refinancing at par as unlikely.
  • In our view, the company's capital structure is likely unsustainable in the long term in absence of unexpected positive developments.
  • As a result, S&P Global Ratings lowered its ratings on Taseko, including its issuer credit rating (ICR) on the company, to 'CCC+' from 'B-'.
  • The negative outlook primarily reflects our view of the risk that Taseko's liquidity position and refinancing prospects will weaken through 2020, increasing the likelihood for a debt restructuring transaction.
TORONTO (S&P Global Ratings) March 24, 2020--S&P Global Ratings today took the rating actions listed above. The downgrade reflects our view of the heightened risk to Taseko's liquidity position. We believe Taseko is at risk of depleting its liquidity over the next 12 months, following the sharp deterioration in copper prices and uncertain, but potentially negative, impact of the COVID-19 outbreak. The COVID-19 pandemic is responsible for the recent suspension of several mining operations globally, and we can't rule out a temporary closure of the company's Gibraltar mine. Taseko relies exclusively on this mine for all of its operating cash flows. In our view, the company's liquidity position is highly sensitive to lower-than-expected copper prices and/or shortfall in production this year.
The company had a little more than C$50 million in cash at year-end 2019 (with no credit facility), which we estimate will more than cover its fixed charge obligations this year, including interest and maintenance capital expenditures. We estimate Taseko will generate near-breakeven free cash flow this year, which includes our expectation for materially lower capital expenditures. In addition, its secured notes are not due until 2022. Mainly for these reasons, we do not believe that a default on its debt obligations or liquidity crisis is imminent within the next 12 months.
The negative outlook primarily reflects our view of the risk that Taseko could generate a free–cash-flow deficit this year that significantly constrains its liquidity position. In our view, copper prices that are sustained near current levels through 2020, and potential operating disruptions related to COVID-19 are key downside risks. We believe either scenario could lead to an increased risk of a liquidity shortfall or higher likelihood of a distressed exchange of the company's secured notes.
We could lower the ratings if, within the next 12 months, we envision a specific default scenario for Taseko. Such a scenario would likely include a liquidity shortfall or expectation for the company to proceed with a distressed exchange of its secured notes. In our view, this could follow sustained copper market weakness, a protracted operating disruption, and/or its notes trading significantly below par as maturity approaches
We could revise the outlook to stable or raise the rating if, over the next 12 months, we believe the company will stabilize or improve its cash position. In such a scenario, we could also expect improved prospects for its secured notes to be refinanced at levels that we do not view as a distressed exchange. We would expect a material and sustained improvement in credit and copper market conditions for this to happen.
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