Taseko Mines (TGB) Rating Lowered to 'B-' by S&P

Standard & Poor's Ratings Services today said it lowered its long-term corporate credit and issue-level ratings on British Columbia-based copper producer Taseko Mining Ltd. (NYSE: TGB) to 'B-' from 'B'. The outlook is negative. The '3' recovery rating on the company's unsecured notes is unchanged and reflects our view of meaningful (50%-70%) recovery in a simulated default scenario.

"The downgrade reflects our expectation that Taseko will generate weaker–than-expected cash flow over the next two years, and follows the downward revision of our copper price assumptions over this period to US$2.70 per pound from US$3.10 per pound," said Standard & Poor's credit analyst Jarrett Bilous.

Based on our revised earnings and cash flow estimates, we expect Taseko will generate an adjusted debt-to-EBITDA ratio well above 5x through 2015, which breaches our previous downside rating trigger.

Standard & Poor's now views Taseko's financial risk profile as "highly leveraged," with no change in its "vulnerable" business risk profile on the company, resulting in a 'b-' anchor score and final rating of 'B-'. We revised our financial risk assessment to "highly leveraged" from "aggressive" primarily to reflect our view of the company's weaker cash flow prospects through next year and corresponding negative impact on Taseko's core ratios and liquidity assessment. The company's business risk profile remains "vulnerable" given Taseko's limited operating diversity and high cash costs,
which increase its susceptibility to market fluctuations and unexpected production disruptions.

The negative outlook reflects the possibility of a downgrade if Taseko's liquidity deteriorates significantly through 2015, which we believe could result from continuing copper price weakness, sustained cash cost pressure, or operational disruptions. We estimate that Taseko has sufficient liquidity to fund expected cash outflows through 2016.

We would lower the rating again if Taseko's liquidity position deteriorates to a point where we believe the company may not be able to fund its financial commitments over the next 12-18 months. In this scenario, we would expect average copper prices to be about in line with or lower than our current assumption, along with sustained or intensified cost pressure, or operational disruptions.

A positive rating action could result from an improvement in our liquidity assessment to "adequate," which we assume would require a sustained increase in average copper prices above our current base-case assumptions alongside a sustained improvement in Taseko's cash cost of production.

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