A&A raises the rating of Volcan's shares, but warns about future challenges.

Apoyo & Asociados (A&A), the firm affiliated with Fitch Ratings, has upgraded the ratings of Volcan Compañía Minera's common shares Type A and B from category 4a (pe) to 3a (pe). This decision is based on an improvement in the company’s solvency and profitability stability, but the rating agency has warned that no further improvements are expected in the short term. The positive review by A&A comes at a time when Volcan has managed to reduce uncertainty surrounding its refinancing. The company had to carry out a comprehensive modification of the "Amended and Restated Credit Agreement," a syndicated loan agreement for $400 million that was entered into in 2021. This modification has allowed for an extension of the loan's maturity date to July 2029 and established a new amortization schedule that alleviates liquidity pressure. As part of this restructuring, Volcan also conducted a private exchange offer of its “4.375% Senior Notes due 2026” for new “8.750% Senior Notes due 2030.” This operation was accepted by approximately 80.74% of debt holders, which has helped improve the company’s debt profile and reduce liquidity pressure. Despite these advancements, A&A has indicated that Volcan will require significant capital investments to enhance its production and operational performance. Although the company has made strides in generating capital, such as the sale of hydropower assets for $78.5 million and the signing of a forward purchase agreement for concentrates worth $25 million, it still faces significant challenges. In fact, it is expected to allocate $147 million in investment expenses, adding to the pressure it faces in the short and medium term. On another note, Volcan reported accumulated losses of $250 million as of June 2024, resulting from volatility in metal prices. This performance has led the company to present a return on equity (ROE) of -2.2% in the first half of the year, and this negative trend is anticipated to continue over the next two years. Therefore, A&A does not foresee the distribution of dividends in the short term, a factor that may affect investors' perception of the company. Despite the improvement in the rating of the shares, the rating agency has indicated that there are no scenarios for further upgrades in the miner's rating in the short term. This is partly due to the corporate reorganization and financial restructuring processes that Volcan is undergoing. However, there is a glimmer of hope: a significant improvement in operational performance and a reduction in accumulated losses could lead to a positive rating review in the medium term. Volcan's situation highlights the importance of liquidity and capital management in the mining sector, which faces constant challenges from metal price volatility. The company has made efforts to stabilize its financial position, but the path to sustained recovery is uncertain and will depend on various factors, including the market environment and its ability to efficiently implement its projects. A downgrade of the rating could also be possible if the company’s generation capacity deteriorates significantly and sustainably. Thus, A&A has made it clear that Volcan's future will largely depend on its ability to navigate these challenges and adapt to a changing environment. In conclusion, while the improvement in Volcan's rating is a positive step, the road to solid and sustainable performance is fraught with obstacles. The key will be how the company manages its investments, liquidity, and the impact of market volatility on its business in the coming months.