JOHANNESBURG (miningweekly.com) – Ratings agency Standard and Poor’s (S&P’s) has given global mining company Anglo American a stable outlook, raising its long- and short-term corporate credit ratings to BBB-/A-3 from BB+/B.
The agency also raised Anglo American’s long-term South Africa national scale rating to zaAAA from zaAA+, and affirmed the short-term national scale rating of zaA-1+.
At the same time, S&P raised its rating on Anglo's revolving credit facility and unsecured notes to BBB- from BB+.
This revised outlook comes on the back of Anglo’s recently published strong financial results for the first half of the year, reflecting the rebound in commodity prices for iron-ore and coking coal.
Anglo American reported underlying earnings before interest, taxes, depreciation and amortisation (Ebidta) for the first six months of $3.8-billion.
“Based on Anglo's capital expenditure guidance for the coming years, and our view that the company will stick with the base dividend pay-out in the coming 12 months, we expect the company will allocate the excess cash to further reduce reported net debt to about $6-billion by the end of 2018,” the statement said.
The recovery in commodity prices and the rapid reduction in Anglo's net debt position have led the company to scale back its previous plan to focus on commodities that have strong medium- and long-term fundamentals, such as copper, diamonds and platinum.
S&P’s noted that some valuable assets, such as the Australian hard coking coal mines and the iron-ore assets, will remain part of its portfolio, while other small, less competitive assets will be divested over time.
The ratings agency said it viewed Anglo's business risk profile as satisfactory.
This assessment balances Anglo's strong competitive position in certain commodities – supported by its diversified and long-life assets – with its scale and overall Ebitda compared with larger peers.
Other factors include the company's significant exposure to country risk in South Africa and the cyclicality of the mining industry.
“The stable outlook on Anglo reflects our view of the limited downside prospects for the rating over the coming 12 months,” said the agency.
S&P’s pointed out that it would consider lowering the rating if Anglo's funds from operations-to-debt ratio, using the agency’s proportional consolidation approach, fell below 45% on average through the cycle.
This could occur if the Chinese economy experienced a more pronounced slowdown compared with S&P’s base case, and would have a direct effect on the prices of key commodities such as iron-ore, diamonds and coal.
“At this stage, we do not see a further upgrade as likely in the coming 12 months.”