Bangkok--4 Aug--Standard & Poor's
HONG KONG (Standard & Poor's) Aug. 4, 2015--Standard & Poor's Ratings Servicessaid today that it had revised its outlook on China Gold InternationalResources Corp. Ltd. (CGI) to negative from stable. At the same time, weaffirmed our 'BBB-' long–term corporate credit rating on CGI. We also affirmedour 'BBB-' long-term issue rating on the company's outstanding guaranteed U.S.dollar-denominated senior unsecured notes. In line with the outlook revision,we lowered our long-term Greater China regional scale ratings on CGI and thenotes to 'cnBBB+' from 'cnA-'.
We revised the outlook on CGI to negative following a similar action on thecompany's parent China National Gold Group Corp. (CNG: BBB/Negative/--;cnA-/--).
"The negative outlook on CGI reflects the outlook on CNG and our view that CGIwill remain a highly strategic subsidiary over the next 24 months," saidStandard & Poor's credit analyst Jian Cheng. "The rating on CGI will move intandem with that on CNG unless we reassess CGI's group status."
Our affirmed rating on CGI reflects the support the company is likely toreceive from CNG. We believe CGI will also benefit from indirect extraordinarysupport from the government of China.
The rating on CGI is one notch lower than on CNG because we consider CGI to bea "highly strategic" subsidiary. CGI is CNG's only overseas business andfinancing platform. We expect CGI's profit contribution and importance to thegroup to increase because the parent may inject assets into the company.
We expect CGI's scale to remain small and its profitability to stay in linewith the industry average over the next 12-18 months. CGI's geographicconcentration is higher than global peers'. The company's cash production costis on par with the industry average. We assess CGI's business risk profile as"vulnerable."
CGI's high capital spending constrains its "aggressive" financial riskprofile. The company's debt-funded capital spending may slow down over thenext six to 12 months because a large portion of the company's expansion iscomplete. We expect CGI's EBITDA to gradually improve only from 2016 becauseinitial production from the second phase at Jiama mine may temporarily lowerthe company's overall margin. We expect the company's cash flow leverage toremain commensurate with the "aggressive" category over the next 12 months.
We assess CGI's stand-alone credit profile (SACP) as 'b' to reflect thecompany's business and financial risk profiles. Any change in CGI's SACP willnot affect the rating.
We may raise the SACP if CGI's profitability consistently improves in relationto its global peers'. We may also raise the SACP if the company ramps upproduction, such that the ratio of funds from operations to debt stays above20% on a sustainable basis.
We may lower the SACP if CGI's debt-funded expansion is more aggressive thanwe expect or its gold production is lower than we anticipate, such that theratio of funds from operations to debt falls below 12% for an extended period.