Citing the company's high business risk as a capital-intensive commodity-based company with modest scope of operations, limited reserve base, and political and operating risk at most of its operations, Standard & Poor's Tuesday lowered its ratings on Coeur d'Alene Mines from ‘B-‘ to ‘CCC'.
The lower ratings reflect our expectation that, as a result of the company's aggressive ongoing capital spending initiatives to boost mined volumes, the company liquidity position will likely become further constrained in the near term, resulting in a funding shortfall during 2009, said S&P Credit Analyst Sherwin Brandford.
The agency also lowered the issue-level rating on Coeur's $60 million senior convertible notes, and also removed the rating from CreditWatch. The outlook is now negative.
The rating also incorporates the company's aggressive expansion plans, said Branford and fellow Credit Analyst Marie Shmaruk. Meaningful challenges continue to include volatile prices, government regulation, environmental challenges, and adverse geologist conditions.
The analysts also noted that Coeur's aggressive capital spending to boost its reserves and reduce its production costs has improved Coeur's position as a silver producer. Nevertheless, they added, it is still a relatively small precious metals company, expecting to produce about 20 million ounces of silver this year.
In addition to its size, with more than half of its 2009 production slated to come from its combined operations in Argentina and Bolivia, the company is subject to a high degree of geo-political risk, they added.
The risk of environmental challenges inherent in its business is exemplified by the company's set-backs at its Kensington Gold mine in Alaska, S&P advised.
The analysts noted Coeur's debt has increased significantly with adjusted debt increasing to about $500 million as of Dec. 31, 2008, from about $260 million as of Dec. 31, 2007.
Meanwhile, Coeur's liquidity consisted of about $30 million in cash as of Dec. 31, 2008, a level S&P considers inadequate given Coeur's extensive capex program and weak cash flow generation.
Even with the recent $100 million in cash raised, we do not expect the company will not have enough cash to support its capital program through 2009 and maintain adequate liquidity without the injection of addition capital, the analysts advised.
S&P also noted that on Nov. 13, 2008, Coeur received notice from the NYSE that its stock was in danger of being de-listed from the exchange for not being complaint with a listing standard mandating a company's stock needs to trade at a minimum price of $1 during any 30 consecutive day period.