Moody’s downgrades Penoles to Baa3/Aa2.mx

Moody's Investors Services said it downgraded Industrias Penoles, SAB de CV’s global scale rating to Baa3 from Baa2 and national scale rating to Aa2.mx from Aa1.mx.

The outlook is stable.

This rating action resolves a rating placed under review pursuant to Moody's review of the global mining sector, parts of which have undergone a fundamental downward shift. While gold has not experienced the same magnitude of recent price reductions seen in base metals, it is nevertheless a volatile commodity, the price of which is very hard to predict as it is not driven by normal industrial supply and demand factors.

Moody’s said the downgrade to Baa3 reflects its perception of a deepening in the structural subordination related to Fresnillo, as Penoles' derives the majority of its EBITDA from its 75% interest in Fresnillo. Although credit metrics for Penoles have been historically strong, the depressed price environment has negatively impacted margins and coverage ratios, and free cash flow will likely remain negative for the next few years, the agency said.

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