Fitch Ratings affirmed Almalyk Mining and Metallurgical Complex's long-term issuer default rating (IDR) at 'BB-' with a stable outlook. Almalyk's rating is equalised with that of its sole parent, Uzbekistan (BB-/Stable), reflecting the strong ties between the company and the state. Fitch's government-related entities rating criteria highlight the close relationship between Almalyk and Uzbekistan.

Almalyk's Standalone Credit Profile (SCP) is assessed at 'b+', reflecting its small but growing scale of operations, commodity diversification into copper, gold, zinc, and silver, a favourable cost position of its main asset, long reserve life, and moderate leverage.

Almalyk's current reliance on a single mine will decrease once the greenfield copper-gold Yoshlik project is commissioned. The project, expected to be completed by the end of 2024, will substantially increase Almalyk's production scale and asset diversification. The first phase of the project, with a budget of $4.8 bn, includes a new mine and a processing plant that will increase copper output to 264,000 tonnes by 2026 (up 78% from 2023) and gold output to over 800,000 ounces by 2026 (up 50%).

Although the project carries execution and financial risks, with liquidity remaining stretched due to expected negative free cash flow reflecting high capex and not yet finalized funding for the second stage, Fitch assesses the responsibility and incentive of the Uzbek government to support Almalyk as 'strong.' The government has provided substantial support to the Yoshlik project, including a $1 bn equity injection over 2017-2022, with a further $300 mn expected in 2024.

Almalyk's corporate governance is improving, with efforts to align with international standards, including publishing IFRS financials and re-estimating reserves according to the JORC standard. 

Almalyk's rating reflects its strong ties with the Uzbek government, the transformative nature of the Yoshlik project, and its improving corporate governance. While the project carries execution risks, Fitch expects strong state support for Almalyk, which, combined with its strategic importance to Uzbekistan, underpins its 'BB-' rating with a stable outlook.

Almalyk's standing among its peers, including First Quantum Minerals, Freeport-McMoRan, Hudbay Minerals, and Endeavour Mining, is characterized by its output, cost position, operational diversification, and profitability levels.

Almalyk's output of 149,000 tonnes of copper and 0.5 mn ounces of gold exceeds that of Hudbay, which produced 132,000 tonnes of copper and 0.2 mn ounces of gold. However, it is notably smaller than FQM and Freeport, both among the top 10 global copper producers. FQM produced 707,678 tonnes in 2023, while Freeport produced 1.2 mn tonnes.

Operational diversification is a weaker point for Almalyk compared to its peers, with over 80% of production coming from a single mine. This exposes the company to single-country operational risk, unlike its peers, which have operations in multiple countries. Freeport, in particular, benefits from a wider diversification across geographies, with a more stable operating environment and larger assets with long reserve life.

Factors that could lead to negative rating action or downgrade include a marked worsening of external finances, such as a significant drop in remittances or a widening trade deficit, impacting FX reserves. Similarly, a rise in the government debt-to-GDP ratio or erosion of fiscal buffers could trigger a downgrade.

Conversely, positive rating action or upgrade could result from consistent implementation of structural reforms promoting macroeconomic stability, strong GDP growth, and better fiscal outcomes. Confidence in durable fiscal consolidation enhancing medium-term public debt sustainability could also lead to an upgrade. Additionally, a marked and sustained improvement in governance standards would be viewed positively.

Almalyk's standalone liquidity is stretched due to its ambitious capex program and projected negative free cash flow for 2024-2025. However, funding for the first stage of the Yoshlik project has been secured, with $720 mn available for drawdown in 2024 and a $300 mn equity injection expected in 2024 from the state. The second stage of the project, budgeted at $1 bn, is expected to be funded by loans from international banks. A delay in state support or external funding could lead to further deferrals of stage two of the project.

Almalyk Mining and Metallurgical Complex's ESG relevance score of '4' for financial transparency reflects a limited record of audited financial statements, negatively impacting the credit profile. This factor is relevant to the rating in conjunction with other factors, highlighting the importance of financial transparency in the ESG framework.

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