"Volcan improves its credit rating but faces significant financial challenges."

The recent improvement in the credit rating of Volcan Compañía Minera by Apoyo & Asociados (A&A) has generated renewed interest in the financial sector, although the firm warns that no further improvements are anticipated in the short term. The decision to raise the ratings of the company's Class A and B common shares from category 4a (pe) to 3a (pe) is based on a combination of factors that reflect an "acceptable combination of solvency and stability in the issuer's profitability." According to A&A's analysis, this rating change is primarily due to a significant reduction in uncertainty regarding the refinancing that Volcan needed to undertake. In this regard, the company found it necessary to carry out a comprehensive modification of the "Amended and Restated Credit Agreement," corresponding to a syndicated loan totaling 400 million dollars, signed in 2021. This restructuring extended the loan's maturity to July 2029 and established a new amortization schedule for the outstanding debt of 369.4 million dollars. In addition to this, in August of this year, Volcan launched a private exchange offer, swapping its "4.375% Senior Notes due 2026" for new notes with a higher interest rate of 8.750% and maturing in 2030. By August 22, 2024, the company had received valid offers representing approximately 80.74% of its outstanding principal, indicating a high level of acceptance among bondholders. Despite these improvements in Volcan's financial structure, A&A emphasizes that the company needs to make significant investments to enhance its production and operational performance. The firm has taken measures that have strengthened its liquidity, such as entering into a forward sale agreement for concentrates worth 25 million dollars and selling two hydroelectric plants for 78.5 million dollars. This latter transaction has allowed 31.7 million dollars to be incorporated into the financial statements by June 2024, in addition to freeing up capital of 48 million as a result of Glencore's sale to Transition Metals. At the end of the first semester, Volcan reported cash availability of 68 million dollars, representing a 10.3% increase compared to December 2023. However, the company faces the need to allocate approximately 147 million dollars in capital expenditures for the development of the Romina project, of which an estimated 86 million will be required in 2025, indicating that additional financing will be necessary. Regarding its financial performance, A&A reports that Volcan has accumulated losses of 250 million dollars up to June 2024, resulting from volatility in metal prices. This situation has led to a return on equity (ROE) of -2.2% in the first semester, and this negative trend is expected to persist over the next two years, meaning that there will be no dividend distributions in the short term. The rating agency, therefore, has not identified short-term improvement prospects for the mining company's rating, in the context of its corporate reorganization and financial reshaping. However, A&A believes that, in the medium term, improved and sustained performance leading to a material reduction in accumulated losses could lead to a rating review. At the conclusion of the analysis, A&A warns that a significant deterioration in Volcan's cash flow generation capacity and liquidity could result in a negative action regarding its rating. This scenario reflects the fragility of the company, underscoring the importance of strategic decisions to ensure its financial stability in a highly volatile environment.