Anglo American’s credit rating has been downgraded to ‘junk’ status in the light of declining commodity prices, particularly iron ore, and ‘significant’ challenges in executing the restructuring plan the company announced in December.
Moody’s announced the downgrade late last night, specifically changing Anglo American’s credit rating to “(P)Ba3 from (P)Baa3 and converted the company’s Baa3 long-term issuer rating into a Ba3 corporate family rating (CFR)”.
“With the downturn likely to be deeper and longer than previously anticipated, the rating agency believes that price risk remains on the downside, given global economic uncertainties and slowing growth in China,” Moody’s said in a statement.
It continued stating that “the company now faces a higher business risk due to deterioration in commodities market conditions and a longer and more uncertain deleveraging period than previously expected.”
Anglo American’s debt capacity and debt protection metrics were additionally deemed to be deteriorating on the back of dropping prices for key commodities. Moody’s further stated that the low value of the production currencies – the South African Rand and Brazilian Real – further affected Anglo’s profitability and raised doubts around the company’s ability to “deliver substantial organic debt reduction”.
Top five mining companies see a drop
According to a global news source, Anglo American is the first of the top five mining companies to see a drop in credit rating, although of the five, only BHP Billiton and Rio Tinto have ratings well above junk.
Anglo American today posted losses of $5.6 billion in 2015, compared to $2.61 in 2014. The company has announced it will continue to sell off assets in order to reduce debt.
Media opinion reveals that Anglo American is considering options to exit its Kumba iron-ore business in South Africa at the appropriate time. Additionally, the company has announced that the Moranbah and Grosvenor coal mines in Australia are on offer, along with its nickel business.
This is part of a global strategy to refocus on core products in the platinum, diamond and copper sector. In a press release from the company, Anglo said that it would “focus on competitive, long life assets with considerable organic growth opportunities that mine consumer-driven materials that are expected to benefit from long term growth trends as the global economy evolves and developing economies mature.”
Mark Cutifani, Chief Executive of Anglo American, said: “We are taking decisive action to sustainably improve our cash flows and materially reduce net debt, while focusing on our most competitive assets.
“We have detailed a series of measures, including $1.9 billion of additional EBIT benefits from cost and productivity improvements to deliver positive free cash flow in 2016 and beyond, and an additional $3-4 billion in asset disposal proceeds. As a result, we are targeting net debt of less than $10 billion in 2016, assuming current commodity prices and exchange rates. In the medium term, we are targeting net debt of $6 billion, supporting a return to a solid investment grade credit rating.”
He concluded, saying: “This is a period of considerable change in Anglo American’s long history of evolution and I appreciate the support of all our employees and stakeholders in helping to deliver the sustainable value that we all demand and expect. We are creating the new Anglo American.”