Tuesday, February 16, 2016

Anglo American’s Credit Rating Downgraded to Junk
James Wilson, mining correspondent
Financial Times

Anglo American’s credit rating was downgraded to junk status on Monday by Moody’s, which said the diversified miner faced higher risks from a sweeping commodities downturn.

Anglo is the first large global diversified miner to lose its investment grade credit rating amid the commodities rout.

Moody’s decision was published ahead of Anglo’s annual results on Tuesday, when the miner is expected to report a sharp reduction earnings and outline a wide-ranging asset sale plan.

There was “high execution risk” associated with Anglo’s restructuring plan, said Moody’s.

“Challenging market conditions are likely to slow the pace of the portfolio transformation,” it added.

Miners have been squeezed by a multiyear downturn in commodity prices that gathered pace last year, sending the prices of some natural resources to levels last seen before the 2008 financial crisis.

The slowdown in commodities “was not a normal cyclical downturn, but a fundamental shift in the operating environment for the global mining sector”, said Moody’s. “Price risk remains to the downside, given global economic uncertainties and slowing growth in China.”

Anglo’s was one of a swath of natural resources companies’ ratings that Moody’s put on review last month.

The elite miner will need brutal cuts to jobs while two-thirds of its assets are shut or sold
Anglo said it had about $15bn of liquidity at the end of 2015 and bond maturities this year of $1.6bn.

Moody’s estimated that at the end of 2015 Anglo’s adjusted gross debt represented 4.2 times its annual earnings before interest, tax, depreciation and amortisation.

“The rating agency does not expect Anglo American to generate sufficient operating cash flows to deliver substantial organic debt reduction in the next two years,” said Moody’s.

Anglo responded: “Anglo American is taking the necessary steps to further strengthen its balance sheet with the objective of returning to a solid investment grade credit rating and will set out the details of these actions on Tuesday.”

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