Fitch expects higher volatility for CIS mining companies

Fitch Ratings said it expects higher volatility risks for metals and mining companies in the Commonwealth of Independent States in 2012 following their strong performance in 2011.

The agency has a stable outlook for the sector in 2012. It said this may be revised to negative if stronger than expected global shocks seriously affect the issuers' capital structures and liquidity profiles.

Fitch said weaker market conditions and excess industry production capacity support its conservative view of the global steel sector's development in 2012. However, major CIS steel companies Evraz SA, Metinvest BV, OAO Severstal, OJSC Magnitogorsk Iron and Steel Works and OJSC Novolipetsk Steel have control over raw materials supplies, resulting in higher margins and leaving them better prepared for the potential economic downturn versus their global peers, in the agency's view.

Fitch expects CIS companies in the mining sector, including Ferrexpo plc, JSC Holding Co. Metalloinvest, OAO Raspadskaya, OJSC Alrosa and OJSC MMC Norilsk Nickel, to deliver strong financial results in 2011. The agency estimates mining companies' free cash flow generating ability will fall in 2012 due to moderate price decreases following its rally in 2011, coupled with sustained capex. However, credit metrics should remain quite strong in the medium term, Fitch predicted.

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