TEXT-Fitch affirms major diversified mining companies
Feb 27 - Fitch Ratings has affirmed BHP Billiton Plc/Ltd (BHPB; 'A+'/Stable), Rio Tinto Plc/Ltd (RT; 'A-'/Stable) and Anglo American Plc (AA; 'BBB+'/Stable). A full list of affected ratings is at the end of this release.
The affirmations follow an industry review, which included an analysis of forecast operational and financial profiles for each company over the next three to four years. Over this period, Fitch expects general commodity prices - including specifically for iron ore and copper - to show a gradual decline towards mean levels as commodity demand growth in China and other emerging markets slows in relative terms.
Each company's credit metrics are expected to remain at a satisfactory level for their respective ratings, albeit that the level of rating headroom has declined over the past 12 months. Fitch believes the current capex spending cycle peaked in 2012 with spending declining year-on-year over the next three to four years. This reduction will support a future debt reduction, albeit in the near term (2013-2014) the rate of decline will be limited by the need to complete previously approved projects. Over this period lower capex spending together with planned operating cost reductions will not fully compensate for the negative impact of commodity price declines.
Rating differentials continue to be largely driven by comparative profitability levels and operational factors such as commodity mix and diversification, and the cost position of individual operations. In this respect, BHPB continues to be positively differentiated from its peers by its ownership of substantial, and highly profitable, oil & gas operations. Also, while each of the companies are substantial producers of iron ore, copper and coal, at present, BHPB's and RT's iron ore operations are substantially larger than those of AA.
Liquidity and capital markets access remain strong for each company and does not represent a major differentiating factor.
A key consideration for the future direction of BHPB and RT's ratings will be how management balances cash outgoings for capex and dividends against operating cost reductions and asset sales over the next two years. For AA key rating drivers include developments in the South African operating environment, a potential further restructure of its platinum operations and the successful completion of its Minas-Rio iron ore project.
RATING SENSITIVITIES Continued...