Comments on the proposed methodology can be submitted by 31 July 2022. Scope will review and publish the content of written responses in accordance with regulatory requirements unless the respondent has explicitly requested confidentiality.

The new 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 proposed methodology introduces new 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. Notable changes are:

• Market position: elements introduced including 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.
• Commodity trading: only relevant to companies engaged in commodity trading. Aspects assessed include price, credit and operational risks as well as risk management, culture and organisation.
• Profitability and operating efficiency: EBITDA margin ranges calibrated 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 new 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 methodology will not impact existing credit ratings that will fall into scope of the methodology.

Call for comments

Scope invites issuers, investors and other interested parties to comment on the methodology by 31 July 2022 as part of the agency’s ongoing commitment to transparency and open dialogue with market participants.

Please send your comments to consultation@scoperatings.com. Scope will review the comments and will publish the final version of the methodology thereafter.

The ‘Metals & Mining Rating Methodology – Call for Comments’ is available for download at www.scoperatings.com or on this link.