Scope Ratings has today published a metals and mining rating methodology to complement its general corporate rating methodology. The methodology improves credit differentiation through an industry-specific credit risk evaluation and a more detailed and nuanced assessment of credit factors. Scope’s approach further improves transparency and highlights the relative importance of key rating drivers when analysing metals and mining corporates.

Methodology highlights

The methodology introduces rating factors to the competitive position assessment, which for the metals and mining industry is based on four areas: i) market position; ii) diversification; iii) cost and reserve position; and iv) profitability and operating efficiency. Cost and reserve position is unique to the metals and mining industry.

Scope has refined its approach within these four areas and introduced elements specific to the metals and mining industry:

• Market position: elements introduced include product value-added, revenue stability, market access, and regulatory, legal and political risk (also referred to as country risk).
• Diversification: asset concentration identified as a key risk factor for the industry.
• Cost and reserve position: the most important performance indicator for metals and mining companies, this rating factor is weighted highest in the competitive position assessment.
• Profitability and operating efficiency: EBITDA margin ranges recalibrated for the specific industry sub-segments; the introduction of two new measures: i) the coefficient of variance for EBITDA, which measures profitability volatility; and ii) the return on capital employed (ROCE), a complementary profitability measure that is also an indicator for capital efficiency and comparable across the industry’s sub-segments. 

The methodology also provides guidance on assessing credit metrics for metals and mining companies exposed to industry cyclicality. It also explains how Scope adjusts its credit metrics for pre-sold or hedged inventories of physical metals trading operations. The importance of ESG considerations and how they are consistently incorporated into the credit analysis are highlighted in ESG considerations for the Metal and Mining Industry.

Rating impact and reviews

The methodology will not impact existing credit ratings that will fall into scope of the methodology.

The methodology is available for download at www.scoperatings.com or on this link.