Stillwater loss of GM contract will have minimal impact-S&P
While S&P is confident Stillwater Mining will survive the lost of its GM contract, the agency's analysts are concerned the PGM miner could not withstand the loss of its major customer, Ford Motors.
Author: Dorothy Kosich
Posted: Monday , 24 Aug 2009
RENO, NV -
mineweb.com
The loss of the General Motors palladium and rhodium supply agreement will have a minimal impact on the only U.S. primary PGM miner, Standard & Poor's asserts.
Nevertheless, Credit Analysts Maurice Austin and Marie Shmaruk expressed concerned about the long-term viability of Stillwater, "given the challenges facing its largest customer, Ford, and the expiration of the current contract at the end of 2010."
"The continuing pressures on Ford's credit quality and expected low auto production levels in the coming year raise concerns about the continuation of a favorable supply contract with Stillwater," they advised.
S&P affirmed its ‘B-‘ credit ratings for Stillwater and removed it from the credit agency's CreditWatch list. However, the analysts said, "The negative outlook reflects our expectation that platinum group metal prices and demand will remain around currently low levels and will continue to pressure the company's operating performance in the near term."
"The rating reflects the company's very limited operating diversity, high cost profile, exposure to volatile metal prices, and dependence upon the U.S. automotive sector," they added.
"Standard & Poor's considers that Stillwater possesses limited operating diversity, as the majority of its production comes from two underground mines, leaving it vulnerable to production disruptions and other unforeseen operating events."
However, the analysts also advised that Stillwater "has somewhat diversified its business model" through recycling which comprised 55% of its business last year. "However, this business has slowed now that metal prices have declined. Currently we expect recycling revenues to be about 20% of 2009 revenues."
Despite Stillwater's history of missed production targets, the analysts noted the miner is on target to meet its mine production estimate of 485,000 PGM ounces this year.
In their analysis, S&P expects Stillwater to be slightly cash flow positive for the remainder of this year. Anticipated cash balances should be in the range of US$180 million, according to the agency.
However, the analysts earned, "We could lower the rating if Stillwater's cash consumption exceeds US$100 million within the next several quarters, substantially eroding its liquidity position; or if PGM prices decline significantly from current levels weakening profitability. Specifically, if platinum prices decline to around US$900 per ounce, we expect the company to use a substantial portion of its excess cash balances to fund its operations until conditions improve."
"We could revise the outlook to stable if Stillwater renegotiates an extension of the Ford supply contract or PGM prices do not decline significantly from current levels," S&P advised. |
