LatAm miners to post adequate cash flows despite lower metals prices - S&P

Latin American miners have suffered from lower cash flow generation in 2012 due to weaker metals prices, but thanks to low-cost positions, Standard & Poor's ( S&P) is expecting companies to post adequate cash flows and benefit from strong liquidity. Metals prices have declined from the peak of the cycle in 2010 and 2011. "We continue to project lower prices for 2013, as demand growth slows and new capacity is added. On average, we expect a 5%-10% price drop in iron ore and a 5%-8% in copper," the agency said in an industry outlook report. However, because most of the producers have low operating costs, and given their high-ore grade reserves and integrated capabilities, S&P says profit margins have enough cushion to absorb a lower-price scenario in 2013. Most Latin American companies will be able to reduce expansion capex, postpone projects or even suspend less attractive endeavors, according to the report. The addition of new supply capacity, which was one of the reasons for lower prices, will not be the main risk for future price volatility, according to S&P. "Our main concern is a global economic deceleration, with a prolonged recession in the Eurozone and a deeper slowdown in China," the agency said. There is also more downside risk to new projects going forward, particularly from smaller miners. At the same time, labor costs and capex inflation are ongoing challenges, especially given the significant investment programs in the region. "If prices decline further than our expectation because of a weaker demand, our outlook on the mining companies may turn negative," the agency said. To read the full report, go to this link