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Fitch downgrades Milpo's issuer default ratings to BBB-

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Fitch downgrades Milpo's issuer default ratings to BBB-

Fitch Ratings downgraded CompañíaMinera Milpo SAA's long-term foreign and local currency issuer defaultratings and US$350 million unsecured notes to BBB- from BBB, with the outlook revisedto negative from stable.

These followed the downgrade to BBB- and negative outlook ofMilpo's ultimate parent, Votorantim SA.

Milpo's ratings are linked to Votorantim's ratings because ofits ownership, strong operational and legal ties, and shared management, the ratingagency said March 31.

"Should the current level of operational and legal tieschange as a result of [Votorantim] divesting its ownership stake in Milpo, thena rating action based on Milpo's standalone credit profile could follow," therating agency said.

Votorantim increased its stake in Milpo to 60.06% in July 2015,with Votorantim Metais SAfully consolidating Milpo.

Fitch estimates that Milpo's EBITDA will decline to around US$140million this year, on the assumption of zinc prices at US$1,625 per tonne and copperprices at US$4,800 per tonne.

EBITDA margins, which fell to 30% in 2015, will move closer tohistorical levels of around 40% when new, more profitable projects come into productionin 2017 to 2018.

The rating agency expects the company's free cash flow to bearound US$5 million this year, but will drop to negative US$100 million in 2017and negative US$75 million in 2018 as greenfields CapEx ramps up and dividend paymentsstart to increase.