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Rio Tinto, BHP Billiton, Anglo American hit with negative ratings outlook

The continual downfall in commodity prices has caused global credit ratings agency Fitch to place mining giants BHP Billiton, Rio Tinto and Anglo Americ...

Admin
|Jun 12|magazine8 min read

The continual downfall in commodity prices has caused global credit ratings agency Fitch to place mining giants BHP Billiton, Rio Tinto and Anglo American on negative ratings outlooks.

The agency downgraded its outlook for BHP Billiton and Rio Tinto from stable to negative, and notified the companies for possible future downgrades as lower predictions for iron ore, copper and nickel prices are expected.

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According to Fitch, iron ore prices will hover around $50 per ton in 2015 and 2016, slightly moving up to $60 in 2017 before eventually settling at $70 per ton long-term. The prediction is based on the assumption BHP and Rio will slow their pace of capacity increase in the Pilbara, in order to sustain lower development costs.

Regardless of its recent South32 spinoff, BHP Billiton remains the top rated firm at A+ due to its superior commodity diversification.

"Fitch assesses the near-term effect of South32's spin-off on BHP Billiton's credit profile as marginally negative owing to weaker projected free cash flow (FCF) generation and a modest increase in FFO adjusted gross leverage after the demerger," the ratings agency noted.

"However, BHP Billiton will benefit from a streamlined business structure and better average position on the commodity cost curve, which will help the company navigate the depressed commodity prices environment."

The world’s second largest mining company, Rio Tinto, is holding strong with its A- rating, but Fitch anticipates the company will be free cash flow negative over the next few years as price forecasts remain weak for iron ore—Rio’s main product.

"Although Rio Tinto benefits from a leading iron ore cost position, the high percentage of revenue and EBITDA (pre-tax profit) generated by that single commodity exposes the company to significant risks."

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Despite some positive developments, the rating agency confirmed its negative outlook on BBB-rated group Anglo American.

"Elevated leverage, which was driven by the intensive capital spending of previous years remains a primary risk, in our view, and is reflected in the negative outlook," Fitch said.

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