TEXT-S&P Report Says Miners Face Pressure From Low Iron Ore Prices

MELBOURNE (Standard & Poor's) Oct. 2, 2012-The recent steep fall in iron ore prices to about half its peak in 2011 will drastically reduce earnings of miners substantially exposed to the commodity, Standard & Poor's Ratings Services said in a report published today. The issue is pertinent for some rated miners that solely rely on iron ore for their business, highlighted the report titled, "An Iron Ore Price Persisting At $100 Per Ton Could Trip Up Single-Commodity Miners

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"Indeed, we believe an iron ore price persisting at or less than $100 per ton would threaten miners that are substantially debt-laden and heavily exposed to the commodity," Standard & Poor's credit analyst May Zhong said. "Our study on eight rated miners found that iron ore prices would need to recover to an average of above $120 per ton in the near term, or miners would need to cut capital spending or costs, for credit pressures to subside for certain producers."

Rated miners' measures to mitigate the pressure would be critical in maintaining their credit quality. This is true even for investment-grade miners. We believe miners that are able to defer capital expenditure and cut costs would be able to withstand a period of low iron ore prices.

The report analyzes the variation of eight rated miners' EBITDA between two benchmark iron ore prices: $100 and $120 per ton. The companies covered are: Anglo American PLC (BBB+/Stable/A-2), BHP Billiton Ltd. (A+/Stable/A-1), Cliffs Natural Resources Inc. (BBB-/Stable/--), Ferrexpo PLC (B+/Negative/B), Fortescue Metals Group Ltd. (BB-/Negative/--), Rio Tinto PLC (A-/Stable/A-2), Vale S.A. (A-/Stable/--), and Vedanta Resources PLC (BB/Negative/--).