CAP S.A.

The stable outlook on CAP reflects the strong recovery in its credit metrics, robust iron ore prices, and sound cash balance. Therefore, we expect leverage to remain below 1.5x and free operating cash flow (FOCF) to debt above 70% in the next 12-18 months despite potential price swings. We could take a negative rating action if iron ore prices were to sharply decline or the company's volume output doesn't stabilize, which could increase logistics costs and penalize values. In that scenario, debt to EBITDA would be consistently close to 2.5x, funds from operations (FFO) to debt below 45%, and FOCF to debt below 5%. We view an upgrade unlikely because of CAP's limited business scale and portfolio concentration. In the

...Exposure to commodity prices generates business volatility. CAP S.A. is vulnerable to iron ore trends, given that the mining business will generate 66% of 2021 estimated EBITDA. In addition, the company's smaller scale than those of its global peers, along with around 90% of production coming from two mines, increases volatility of its cash generation, susceptible to price or adverse event shocks....

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