(The following statement was released by the rating agency) Fitch Ratings-Sydney-July 19: A delay in commissioning of the Wodgina lithium mine will have no immediate rating impact on its owner and operator Australia-based Mineral Resources Limited (BB/Stable), says Fitch Ratings. On 17 July 2019, Mineral Resources said that the commissioning of train 2 at the Wodgina mine will be delayed until the company receives approval from the Western Australian Department of Water and Environmental Regulation. The department has requested additional information about the water balance at the tailings dam at the Wodgina mine. Mineral Resources says that the tailings dam is functioning as expected and engineered, so it does not expect the delay to have any material impact on the project and on the company's financial position.
The company had previously guided that the Wodgina mine will commence the commissioning of train 3 by the end of July 2019. Fitch expects Mineral Resources to provide a revised timeline for production upon release of its result for the financial year ended June 2019 (FY19). Fitch had previously forecast that the Wodgina mine would add to the company's revenue from the beginning of FY20, helping Mineral Resources to reduce its FFO adjusted net leverage to below 3.0x, the level at which Fitch would consider negative rating action. We previously forecast leverage to have been 4.0x at FYE19. We now expect additional revenue from the mine to be delayed. However, Fitch believes the company has benefited from stronger iron ore prices and lower discounts on low-grade iron ore in the second half of FY19, which we expect to continue in the short term. As a result, we expect that Mineral Resources' leverage to have improved to within the guidance for its current rating, to around 2.5x at FYE19. In addition, Fitch expects the company to receive cash proceeds of USD1.15 billion from Albemarle Corporation (BBB/Stable) by the end of 2019 from the sale of half of its stake in the Wodgina mine. The proceeds will push Mineral Resources' balance sheet back into a net cash position. Fitch believes the strong balance sheet position will allow the company to withstand the delay in production at the Wodgina mine and weakness in spodumene price over the short term, while maintaining its credit metrics at a level commensurate with its rating. Should the company not receive the proceeds from Albemarle by end-2019 and the delay in production at Wodgina is prolonged, Fitch then expects Mineral Resources to implement countermeasures to maintain a strong balance sheet, as it has over the last decade. Fitch does not expect Mineral Resources' rating to change as a result of the delay at Wodgina, but we will review the rating and its earnings sensitivities once we have more clarity on the company's earnings and production guidance for FY20. Contact: Leo Park Associate Director +61 02 8256 0323 Fitch Australia Pty Ltd Level 15 77 King St Sydney NSW 2000 Kelly Amato, CFA Director +61 02 8256 0348 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com; Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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