TEXT-Fitch affirms major diversified mining companies

Wed Feb 27, 2013 8:26am EST

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

BHPB

Positive: Future developments that could lead to positive rating actions include:

- Limited by industry cyclicality and company's stated policy of managing its capital structure consistent with a strong single 'A' range rating.

Negative: Future developments that could lead to negative rating action include:

- Evidence of shift away from historic position of funding capex and dividends from operating cash flows.

- Inability to maintain funds from operations (FFO) adjusted gross leverage less than 1.5x at all times and well below this level on average.

RT

Positive: Future developments that could lead to positive rating actions include:

- Sustained FFO gross leverage below 1.5x together with sustained positive free cash flow (post capex and shareholder distributions) may result in a one notch upgrade to 'A'.

Negative: Future developments that could lead to negative rating action include:

- Increase in FFO gross leverage above 2.0x for two successive years.

- Problems at core operations or delays in bringing new development programs into production resulting in a material reduction in production volumes or depletion of reserves over time.

- Large debt funded acquisitions and/or a significant increase in capex spending resulting in sustained negative free cash flow.

AA

Positive: Future developments that could lead to positive rating actions include:

- Completion of the group's current portfolio restructuring programme including full production at key development projects (e.g. Minas-Rio iron ore), leading to a sustained increase in profitability and cash flow margins to levels comparable with RT

Negative: Future developments that could lead to negative rating action include:

- FFO gross leverage exceeding 2.25x for a sustained period.

FULL LIST OF RATING ACTIONS

AA:

Long-term Issuer Default Rating (IDR): affirmed at 'BBB+'; Outlook Stable

Short-term IDR: affirmed at 'F2'

Anglo American Capital Plc :

Senior unsecured debt: affirmed at 'BBB+'

BHPB:

Long-term IDR: affirmed at 'A+'; Outlook Stable

Senior unsecured debt: affirmed at 'A+'

Short-term IDR: affirmed at 'F1'

BHP Billiton Finance (USA) Ltd:

Senior unsecured debt: affirmed at 'A+'

BHP Billiton Finance Ltd :

Senior unsecured debt: affirmed at 'A+'

Petrohawk Energy Corp :

Senior unsecured debt: affirmed at 'A'

WMC Finance (USA) Ltd :

Senior unsecured debt: affirmed at 'A+'

RT:

Long-term IDR: affirmed at 'A-'; Outlook Stable

Senior unsecured debt: affirmed at 'A-'

Short-term IDR: affirmed at 'F2'

Rio Tinto Finance (USA) Ltd :

Senior unsecured debt: affirmed at 'A-'

Rio Tinto Alcan Inc :

Senior unsecured debt: affirmed at 'A-'

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