Fitch Downgrades Eramet to 'B'; Outlook Negative

(Fitch Ratings - Warsaw - 10 Feb 2026)--Fitch Ratings has downgraded Eramet S.A.'s Long-Term Issuer Default Rating (IDR) and senior unsecured rating to 'B' from 'BB-' and removed the Rating Watch Negative. The Outlook on the Long-Term IDR is Negative. The Recovery Rating for the notes is 'RR4'.

The rating action reflects our expectation of weak earnings over 2025-2026 and revision of the applicable Country Ceiling. The Negative Outlook reflects our expectations of very high leverage in 2025-2026 and uncertainty related to the deleveraging path, which will require successful implementation of the company strategy and some market recovery.

We forecast a more meaningful earnings recovery from 2027, and narrowing negative free cash flow (FCF) until 2029, which will see EBITDA gross leverage reduce to about 5x by end-2027. The performance improvement plan pursued by Eramet represents a vital initiative to lift earnings, but we expect it would take further measures to reduce the absolute debt stock that is still building up.

Key Rating Drivers

Depressed Earnings: We anticipate that Fitch-adjusted EBITDA plus dividends received will be lower in 2025-2026 than our previous expectations, closer to EUR300 million for 2025. This is after treating leases as operating expense and before minority dividends and reflects updated volume guidance from the company's 3Q25 reporting and actual market prices for 2025. We only expect incrementally higher earnings for 2026 based on rising contribution from lithium and cost reductions. We expect earnings in 2027 to rise to about EUR550 million due to a more balanced manganese market and lithium operations ramping up towards nameplate capacity.

Rising Absolute Debt Levels: The updated earnings trajectory indicates increased net debt at above EUR2 billion at end-2025 and additional negative FCF in 2026, which is likely to lead to EBITDA gross leverage above 8x at end-2025, materially above Fitch's through-the-cycle mid-point of 4.0x for EBITDA gross leverage in the 'B' category for a mining company. We expect that management will consider measures to return the company to a more sustainable capital structure.

Rating Through the Cycle: We assume that determination of nickel quotas in Indonesia by mid-2026 and an improved short-term outlook in the lithium market could add some earnings in 2026 that are not captured by our rating forecast, which is based on the Fitch price deck. Given that Eramet's earnings are at a cyclical low point, market developments and the company's actions over the next 12-18 months will determine the shape of the earnings recovery and cash flow generation and the timeline for Eramet to return to more sustainable debt levels.

'B-' Country Ceiling: We forecast that EBITDA from operations in France, Norway and the US, alongside dividends from Indonesia, will not cover rising gross cash interest expense in 2025 and 2026, due to weaker manganese alloy and nickel markets. As a result, we now apply the 'B-' Country Ceiling for Gabon and Argentina, in line with our criteria, instead of 'BBB' for Indonesia previously. Export EBITDA from countries that allow offshore earnings retention, together with liquidity at the holding company, should allow Eramet to maintain hard-currency debt service cover above 1x on a 12-month rolling basis, supporting the IDR at one notch above the applicable Country Ceiling.

Efficiency Programme in Implementation: Eramet targets to achieve EUR130 million-170 million of efficiencies over 2026 and 2027, the largest portion of which relates to productivity and volume improvements in the manganese ore operations. Our volume assumptions are lower at 6.75 million tonnes in 2026 and 7 million tonnes in 2027 for manganese ore, as the manganese ore market remains over-supplied in 2026. As a result, we have only assumed mid-double digit million uplift a year in our forecast over the next 24 months.

Robust Cost Position: We estimate that Eramet's cost position averages in the upper half of the second quartile. Lower volumes in its manganese operation have led to incrementally higher cost and we assume business costs to have weakened into the second quartile (previously on the threshold between first and second quartile). Guidance for the Centenario lithium project in Argentina indicates costs in the lower half of the cost curve. Nickel operations at WedaBay were in the third quartile for 2025 due to a lower grade product mix, higher strip ratio and longer haulage distances.

Peer Analysis

A relevant peer for Eramet is First Quantum Minerals Ltd. (B/Stable), a major copper producer that derives, following curtailment of its Cobre Panama mine, substantially all its earnings from Zambia (Country Ceiling B), also a country with a weak operating environment.

First Quantum's cost position has edged up to high third quartile over recent years, while Eramet is assessed on average in the high second quartile. We expect Eramet to see narrowing FCF generation over the medium term towards neutral levels, while First Quantum will be broadly neutral in FCF from 2026 onwards. We forecast EBITDA gross leverage for First Quantum to reduce to below 4x by 2026 from 5x in 2024, compared with Eramet reducing EBITDA gross leverage towards 5x.

The copper producer is concentrated in one single jurisdiction, but benefits from the tight supply demand balance in copper. Eramet's portfolio of four major operations across different jurisdictions is equally aligned with energy transition trends, but the markets for its commodities are oversupplied to balanced.

Fitch’s Key Rating-Case Assumptions

- Manganese ore price CIF China of USD4.50 per dry metric tonne unit (dmtu) in 2026 and USD4.75 to 2029

- LME spot nickel price of USD15,000 per tonne over the forecast horizon

- Lithium carbonate price of USD10,000/t in 2026, USD12,000/t in 2027, USD12,500/t in 2028 and USD15,000/t in 2029

- Volumes of manganese ore transported of 6.75 million tonnes in 2026, 7 million tonnes in 2027 and 7.25 million tonnes in 2028 and stable in 2029. Volumes of lithium carbonate equivalent of 15kt in 2026 and 24kt to 2029

- Capex easing closer to EUR300 million a year on average over 2026-2029

- No dividends over the forecast horizon

- Measures to strengthen the balance sheet to be executed over the next 18 months

- Euro/US dollar exchange rate for 2026 at 1.18, followed by 1.20 to 2029

- Societe Le Nickel (SLN) in New Caledonia deconsolidated from Eramet, due to the latter's decision not to provide further funding. Our forecasts for EBITDA, gross debt, net debt and leverage therefore exclude SLN

Corporate Rating Tool Inputs and Scores

Fitch scored the issuer as follows, using our Corporate Rating Tool (CRT) to produce the Standalone Credit Profile (SCP):

- Business and financial profile factors (assessment, relative importance): Management (bb, Moderate), Sector Characteristics (bbb+, Lower), Market and Competitive Positioning (bb, Moderate), Diversification and Asset Quality (bbb-, Moderate), Company Operational Characteristics (b+, Higher), Profitability (ccc+, Moderate), Financial Structure (ccc+, Higher), and Financial Flexibility (b-, Moderate).

- The quantitative financial subfactors are based on custom CRT financial period parameters: 10% weight for the forecast year 2026, 20% for the forecast year 2027, 30% for the forecast year 2028 and 40% for the forecast year 2029.

- B+ to CC considerations apply in our analysis and result in no adjustment.

- The Governance assessment of 'Some Deficiencies' results in no adjustment.

- The Operating Environment assessment of 'bb' results in no adjustment.

- The SCP is 'b'.

Recovery Analysis

The recovery analysis assumes that Eramet would be considered a going concern (GC) in bankruptcy and that the company would be reorganised rather than liquidated.

Our GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganisation EBITDA on which we base the valuation of the company. We assume a GC EBITDA of EUR400 million, recognising that earnings are currently quite low and that the 2025 results do not capture the earnings capacity of Centenario yet. The equity stake in WedaBay was valued at EUR400 million, broadly similar to the book value, reflecting uncertainty about the earnings capacity of this business pending evolving nickel market regulation in Indonesia.

An enterprise value/EBITDA multiple of 4.5x was used to calculate the post-reorganisation enterprise value, which factors in scale, growth prospects and exposure to weak operating environments of the mines in Gabon, Senegal, Argentina.

We assume that Eramet's factoring programme would be replaced by a super-senior facility in bankruptcy.

First-lien secured debt was quantified at EUR460 million, reflecting funding at operating company level or of a secured nature.

Senior unsecured debt was quantified at EUR2,924 million, assuming its EUR935 million revolving credit facility (RCF) would be fully drawn at the point of distress.

After deducting 10% for administrative claims, our analysis generated a waterfall-generated recovery computation in the 'RR4' band, indicating a 'B' senior unsecured debt instrument rating.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

- EBITDA gross leverage above 5x on a sustained basis

- Weakening in liquidity and increasing refinancing risk

- Signs of a deteriorating operating environment in Gabon, Senegal or Argentina

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

-The rating is on Negative Outlook and, we therefore, do not expect a positive rating action at least in the short term. We would expect EBITDA gross leverage to reduce sustainably below 5x by 2027, FCF to trend towards neutral levels and preservation of healthy liquidity before considering a revision of the Outlook to Stable.

- Positive FCF generation on a sustained basis and robust liquidity would be positive for the rating

- EBITDA gross leverage below 4x on a sustained basis

- Operating EBITDA margin consistently above 20%

- EBITDA interest coverage above 4x on a sustained basis

Liquidity and Debt Structure

We estimate more than EUR250 million of cash at end-2025 and that Eramet's EUR935 million RCF with a June 2029 maturity remained undrawn. The company received a waiver for the net debt/shareholders equity covenant in its bank facilities, including the RCF, for December 2025. Our rating forecast suggests another waiver will be needed for 2026.

Issuer Profile

Eramet is a French medium-sized metals and mining company with scalable, competitive assets in manganese (ore and alloys) in Gabon, nickel in Indonesia, and mineral sands in Senegal. Lithium operations in Argentina are in the ramp-up phase.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

Climate Vulnerability Signals

The Climate.VS for 2035 for Eramet is 50. Eramet has comparatively low Climate.VSt as manganese, nickel and lithium, which are essential for steelmaking and battery applications, are aligned with energy transition trends. In turn the Climate.VSp is elevated as key assets are concentrated in four locations and manganese operations in Gabon also rely on the 650km railway line linking the Moanda mine to the port facilities in Owendo.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores. (ends)