Investing.com -- Fitch Ratings has adjusted the outlook on Zhaojin Mining Industry Company Limited’s Long-Term Issuer Default Rating (IDR) from stable to negative. The IDR and senior unsecured rating, however, have been affirmed at ’BB+’.
The ratings of Zhaojin Mining are based on Fitch’s internal evaluation of the credit profile of its immediate parent, Zhaojin Group Company Limited. The group, 90% owned by China’s Zhaoyuan municipality, is assessed on the Government-Related Entities Rating Criteria. The change in outlook is due to Fitch’s reassessment of the Zhaoyuan municipality’s outlook.
The Zhaoyuan government has a high level of control over Zhaojin Group’s management, strategy, and operations. The group is Zhaoyuan’s largest state-owned entity and the largest gold producer in a city where gold is a significant economic contributor. The group accounts for over 60% of Zhaoyuan’s gold processing capacity and its entire gold refining capacity.
The parent-subsidiary linkage between Zhaojin Mining and Zhaojin Group is described as ’strong’. Zhaojin Mining, 34% owned by Zhaojin Group, holds most of the group’s core mining assets and contributes over 90% of Zhaojin Group’s EBITDA. The group has a ’High’ operational and strategic incentive to support Zhaojin Mining.
Zhaojin Mining has been expanding its presence outside China with its 2024 acquisitions, in line with the company’s "Double H" strategy. The new acquisitions are expected to increase annual gold output by around 5 tonnes.
Fitch does not anticipate aggressive M&A activity from 2025-2027 as management has indicated caution towards acquisitions. Any larger-than-expected debt-funded investment could pressure the company’s financial flexibility and weigh on its credit profile.
Zhaojin Mining is expected to maintain an EBITDA margin of over 40% in 2025-2027 due to high gold prices and high-quality assets. The company’s EBITDA net leverage dropped to 5.8x in 2024, from 7.5x in 2023, and is expected to fall to around 4.0x in the medium term. EBITDA interest coverage rose to 4.7x in 2024 (2023:3.2x) and is expected to improve to above 6.0x in the forecast period.
Zhaojin Mining’s rating is derived from the credit profile of Zhaojin Group, due to the strong linkage between the two entities. The group’s relationship with its parent is similar to that of steel producer HBIS Group Co., Ltd. with the Hebei State-owned Assets Supervision and Administration Commission.
Fitch’s assumptions for Zhaojin Mining include revenue increases from CNY14 billion in 2025 to CNY16 billion in 2027 as a result of acquisitions and the ramp-up of Haiyu mine, and an EBITDA margin of over 40% in 2025-2027.
Factors that could lead to a negative rating action or downgrade include a downward revision of Fitch’s internal assessment of the creditworthiness of Zhaoyuan, weakening likelihood of support from the Zhaoyuan government, and weakening linkages between Zhaojin Mining and Zhaojin Group. The outlook will be revised to stable if Fitch’s internal assessment of the outlook on the creditworthiness of Zhaoyuan is revised to stable.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.