(The following statement was released by the rating agency)
Jan 22 - Standard & Poor’s Ratings Services said today that its rating and outlook on Mongolian Resources Corp. (MRC: B-/Stable/--) are not affected by the cancellation of the company’s proposed bond. MRC intended to use the proceeds of the proposed bonds to repay existing debt and for capital spending and general corporate purposes.
Without the bond, MRC is exposed to greater volatility in its working capital. Nevertheless, we still assess the company’s liquidity as “less than adequate,” as our criteria define this term. We expect MRC to roll-over its short-term debt given its fair relationship with its main domestic short-term creditors. We understand MRC is evaluating other sources of funding, including potential bank loans, to fund its revised capital spending plan.
We now expect MRC’s financial risk profile to improve to “aggressive” from “highly leveraged.” We have revised our base-case forecast for the company’s debt to about US$80 million over the next two years from more than US$300 million. We still view the management’s risk tolerance as high and its financial policies as aggressive.
We expect MRC to scale down its original capital spending to reflect lower external funding availability. We have revised our base-case estimate of the company’s capital spending to about US$50 million over the next two years from more than US$250 million. We have also revised our assumption of sales growth to 1.6 million tons and 1.8 million tons of iron ore concentrate in 2013 and 2014 to reflect lower spending on mining and transportation equipment. The change in these assumptions leads to our revised forecast of a debt-to-EBITDA ratio at about 2.0x in 2013 and 2014 from 4.0x-5.0x, with a ratio of debt to debt plus equity declining to about 50% in 2014 from 80%-85% until 2014.