Fitch Ratings has affirmed the long-term foreign currency Issuer Default Rating (IDR) and long-term local currency IDRs of Minsur S.A. (Minsur) at 'BBB-'. The Rating Outlook is Stable. Fitch has also affirmed the company's USD450 million senior unsecured 6.25% notes due 2024 rating at 'BBB-'.

KEY RATING DRIVERS

First Quartile Tin Producer:

Minsur's investment grade ratings are supported by its position as the world's third largest tin producer with production of around 26,000 metric tons of refined tin expected in 2015. Minsur's cash cost of production is in the first quartile of the industry as verified by the International Tin Research Institute (ITRI). This low cost of production allows the company to generate positive operating cash flows during periods of low tin prices.

Minsur's main asset is the San Rafael underground tin mine in Peru, the largest underground tin mine in the world producing around 6% of global tin supply with an average tin resource grade of 2.2% - the highest in the industry according to ITRI. San Rafael exhibited a cash cost of USD8,850 per metric ton of tin compared to an average tin price of USD16,400/MT for the nine months ended September 2015. San Rafael is vertically integrated with the company's smelter located in Pisco, Peru, allowing it sell higher value-added refined tin.

Low Net Debt:

Minsur has a historical track record of very low leverage although gross leverage has increased due to lower tin prices and sales volumes. For the latest 12 months (LTM) ending Sept. 30, 2015, Minsur's total-debt-to-EBITDA ratio increased to 3.0x while its net-debt-to-EBITDA ratio was neutral when deconsolidating Cementos Melon (Melon), an entity in Chile that is ring-fenced from the mining group and accounted for since the first quarter of 2015 (1Q15) under the IFRS Equity Method.

Total debt as of Sept. 30, 2015 was USD535 million, mainly comprised of the company's USD450 million senior unsecured 6.25% notes due 2024 with the remainder relating mostly to unsecured bank loans for the company's operations in Brazil, Pitinga.

Commensurate Response to Low Prices:

Management implemented an aggressive plan to reduce costs and capex responding swiftly to the low tin price environment. Measures taken by management included renegotiation with suppliers, operational efficiencies at San Rafael, lower administration and exploration expenses, among others. At Pitinga in Brazil, the repair of the hydro-electric energy plant's dam is expected to complete during the second half of 2016 (2H16) substantially reducing energy costs and further lowering the company's consolidated cost position from 2017 onwards. Pitinga's operations have been using expensive diesel fuel generators while the repairs take place, and at the same time, the company has been conducting the expansion of its niobium floatation plant to improve processing volumes.

The company has also embarked upon a new ore sorting initiative using X-ray technology that is expected to allow for the recovery of tin from low grade deposits previously stockpiled for processing at the end of San Rafael's mine life, potentially totalling up to 3,000 metric tons of additional refined tin per year. The project is expected to cost around USD25 million, of which USD13 million has been invested during 2015 with the remainder due this year, and this additional low-cost tin supply could feed the Pisco smelter for up to 30 months beginning 2H16. This potential new supply is not included in Fitch's current base case projections due to ongoing technical studies.

Gross Leverage to Peak 2015-2016:

Fitch's base case indicates Minsur's total debt to EBITDA to be around 3.0x in 2015 and 2016 and negative to neutral on a net debt basis as the company maintains its sizeable cash balance during the anticipated low tin price environment. Assumptions include refined tin volumes of around 27,500 metric tons in 2016 rising closer to 30,000 metric tons in 2017 as new tin volumes, alongside higher volumes of its niobium and tantalum by-products, materialize from Pitinga in Brazil. Fitch's base case assumes prices for tin at USD15,500 per metric ton on average in 2016 and USD16,500 per metric ton in 2017, including Minsur's USD500 per tonne purity premium that it receives above LME prices. Funds from operations (FFO) adjusted leverage is expected to increase from around 2.0x in 2014 to 3.5x in 2015 and 3.4x in 2016, declining below 2.5x thereafter.

Net leverage ratios are projected to slightly increase from 2017 onwards but remain below 1.0x. The net leverage increase is due to higher capex from next year mainly related to the low-cost B2 tailings project targeted to begin in 2H18 and start of investments relating to the Greenfield Mina Justa copper project that Fitch's expects could to be delayed if a price recovery does not occur.

EBITDA Decline Mainly due to Prices:

Minsur generated USD176 million of EBITDA with a 26% margin as of the LTM ending Sept. 30, 2015, a sharp decrease on USD366 million with a 39% margin for the LTM ending Sept. 30, 2014. This deterioration followed a significant fall in tin prices from above USD22,000 per metric ton in 2014 to around USD16,400 per metric ton on average for 9M15 mainly due to the unanticipated increase in tin supply from Myanmar, offsetting Indonesia's export restrictions on tin and negative investor sentiment weighing on metal prices. Minsur's year-on-year volume of tin production also declined by an estimated negative 10% during 2015 due to a period of mining lower head grades, also contributing to lower EBITDA.

The fundamentals for tin prices to improve post 2016 are resilient due to a number of supporting factors, such as LME tin stocks currently at half of the average levels seen during 2014. Recent prices of tin are also close to the marginal production cost of around USD15,000 per metric ton, at which point half of world tin production is loss-making. Tin's usage is also more heavily related to the consumer electronics industry and not the infrastructure sector that is affected by the slow-down in the pace of growth in China. More regulation is also anticipated in Indonesia, further cutting future supply and potentially improving tin prices.

High Grade Tin Assets:

Minsur's leading low cost position will be enhanced over the next few years through B2, the company's Brownfield expansion project that will process San Rafael mine's old high grade tailings that have tin content of 1.1%, the highest grade undeveloped tin project currently in the global pipeline according to ITRI. B2 is due to ramp-up production in 2H18, with annual tin production of around 5,000-6,000 metric tons per year. The expected all-in cash cost of refined tin production for the project is very economical at between USD6,000 to USD8,000 per metric ton with total capex for this project expected at around USD140 million to USD190 million.

Minsur's mined tin resources have historically been replenished every year, with the recent trend indicating higher levels of reserve replacement than ore mined. Minsur also owns and operates an open pit gold mine in Peru, Pucamarca, that has a low by-product cash cost of USD264/oz with an output of 120,000 troy ounces expected in 2015. Pucamarca has reserves of over 1 million ounces of contained gold and resources of over 1.5 million ounces, with a mine life of 10 years.

Ownership by Breca:

Minsur is 68.8% owned by the Breca group, owning 100% of Minsur's voting rights. Breca is one of Peru's largest family-owned conglomerates owning companies in the industrial, financial, mining, real estate, healthcare, insurance and services sectors. Breca also has a strategic 50/50 joint venture with BBVA from Spain in BBVA Banco Continental (Fitch LT FC IDR 'A-'/Outlook Stable), the second largest bank in Peru. Minsur is a key strategic unit for the group.

Sustainable, Conflict-Free Tin:

There is a growing importance from global tin consumers to source conflict free and environmentally responsible sources of tin, mainly as a result of the Dodds-Frank Act. Tin supplies from sources such as Myanmar are not considered to be Dodds-Frank compliant. Large corporations with tin in their products, like Apple, Samsung and Intel, are placing pressure on their suppliers to source tin sustainably and from conflict-free zones. This will benefit Minsur going forward due to its status as a Dodds-Frank compliant supplier of tin.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for Minsur include:

--Total tin sale volumes of around 26,500 metric tons in 2015 and 2016 increasing to around 30,000 metric tons in 2017 due to rising contribution from Pitinga;

--Tin prices at USD16,200 per metric ton in 2015, USD15,500 per metric ton in 2016 and USD16,500 per metric ton in 2017;

--Niobium and tantalum by-product volumes of around 2,300 metric tons in 2016 rising to 3,500 metric tons thereafter with average prices of between USD15,500 to USD16,500 per metric ton;

--Gold sales at around 120,000 oz in 2015, 90,000 oz in 2016 and 80,000 oz thereafter;

--Gold prices at USD1050 per oz in 2016, USD1000 per oz thereafter;

-- Peruvian Nuevo Sol depreciation vs. USD of 5.5% in 2016 and 3% in 2017;

--Operational improvements, niobium floatation plant expansion, and repair of hydro-electric plant dam successfully implemented during 2H16 at Pitinga.

RATING SENSITIVITIES

High Dependency on Tin:

Minsur's financial performance is inextricably linked to the price and demand of tin. While long term fundamentals for tin remain sound and the company is a low cost producer, profitability will be largely affected by price volatility and management's ability to further adapt to lower prices. Deterioration in the company's position within the global cost curve for tin, mined tin reserves not being replenished, significant erosion of liquidity, and consistent negative free cash flow (FCF) outside of investment cycles could lead to a downgrade. Net leverage above 2.0x following completion of the company's various capex projects could also be a concern leading to negative rating actions.

An upgrade is unlikely in the near future as the company manoeuvres through the low metal price environment while managing a conservative capital structure amidst a period of ongoing investments.

LIQUIDITY

Robust Liquidity Position:

Minsur has a robust cash balance and ready access to additional liquidity, if required. The company held cash and marketable securities of USD569 million and short term debt of USD83 million as of Sept. 30, 2015, corresponding to a cash-to-short-term debt ratio of 6.8x. Fitch expects Minsur to maintain a similar liquidity profile during 2016 and close to USD500 million in 2017 under its base case assumptions. The company has potential access to additional liquidity if required, from Breca, its parent company. Breca has a substantial cash and marketable securities position, with no debt at the holdco level. Minsur also has uncommitted credit lines with a number of banks in Peru totalling USD150 million.

FULL LIST OF RATING ACTIONS

Fitch affirms the following ratings:

Minsur S.A.

--Foreign currency long-term IDR at 'BBB-';

--Local currency long-term IDR at 'BBB-;

--Senior Unsecured 6.25% notes due 2024 rating at 'BBB-'.

The Rating Outlook is Stable.

Date of Relevant Rating Committee: Jan. 14, 2016.

Additional information is available on www.fitchratings.com.

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=997966

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=997966

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.