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Global Copper Miners’ Leverage Headroom Supports Growth Potential

Many global copper miners have conservative financial profiles with sufficient headroom to support growth opportunities offered by the energy transition, despite new capacity becoming more expensive and complex due to tighter environmental regulations and riskier operating environments, Fitch Ratings says.

The roll-out of electric vehicles, renewables and related electricity grid infrastructure is driving increasing demand for copper. Without this roll-out demand would increase only marginally. CRU projects copper demand to increase by 39% to 42.5 million tonnes by 2050, while the UN Forecast Policy Scenario assumes demand to double over this time.
Fitch Ratings-London-13 September 2023: Many global copper miners have conservative financial profiles with sufficient headroom to support growth opportunities offered by the energy transition, despite new capacity becoming more expensive and complex due to tighter environmental regulations and riskier operating environments, Fitch Ratings says.

The roll-out of electric vehicles, renewables and related electricity grid infrastructure is driving increasing demand for copper. Without this roll-out demand would increase only marginally. CRU projects copper demand to increase by 39% to 42.5 million tonnes by 2050, while the UN Forecast Policy Scenario assumes demand to double over this time.

Increasing demand, high capex requirements and rising operating costs will support longer-term copper prices, although short-term prices may be volatile due to supply-side disruptions, changes in economic policies, substantial stimulus programmes and variable economic growth.

Developing new capacity is often more complex due to geological, permitting or community challenges. Many miners have therefore turned to M&A for growth opportunities in copper to enhance their business profiles though improved scale, reserve bases and diversification, despite the high multiples of such deals and their potential impact on leverage. However, inorganic growth does not add market supply, potentially leading to supply gaps if limited growth budgets contain miners’ investments in new capacity additions.

We expect most Fitch-rated copper miners to increase their production capacity. Larger miners like Freeport, First Quantum Minerals (FQM) and Antofagasta aim to enhance brownfield projects with additional mining and/or smelting capacities. Smaller miners like Almalyk, Ero Copper and Taseko are engaged in debt-funded transformative projects.

Most copper miners’ ratings in our global portfolio have Stable Outlooks with sufficient leverage headroom for additional investments. We project these companies will have negative free cash flow (FCF) driven by ambitious capex programmes, returning to positive FCF after 2025, while liquidity will remain sufficient during peak capex due to available funding.

Furthermore, we expect rated copper miners’ leverage to return to levels within our sensitivities, as copper prices will eventually moderate, while cost inflation is still high. We do not expect upgrades as a result of low net leverage without material gross debt reduction or a sustained improvement in business profiles.

Only Freeport’s ‘BBB-’ rating has a Positive Outlook, reflecting our expectation that EBITDA leverage will be sustained below our positive rating guidance of 1.8x, supported by the company’s high-quality assets, strong liquidity, improved capital structure and better visibility over cash flows.
Source: Fitch Ratings

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