(Minews) – Global credit ratings agency Fitch has placed BHP Billiton, Rio Tinto and Anglo American on negative ratings outlooks due to the slide in commodity prices.
While all three companies had their current credit ratings reaffirmed, Fitch has put them on notice for possible future downgrades due to lower predictions for iron ore, copper and nickel prices.
Fitch is anticipating that iron ore prices will average $US50 a tonne this year and next, $US60 in 2017 and $US70 long-term.
The current iron ore spot price has rallied to $US65.10 a tonne, after falling to the mid-40s in early April.
However, Fitch is also assuming that BHP Billiton and Rio Tinto will both slow their pace of capacity increase in the Pilbara, incurring lower development costs.
BHP Billiton remains the best rated of the three firms at A+ because of its superior commodity diversification, despite the company spinning off some of its mines into a new company called South32.
"Fitch assesses the near-term effect of South32's spin-off on BHP Billiton's credit profile as marginally negative owing to weaker projected free cash flow (FCF) generation and a modest increase in FFO adjusted gross leverage after the demerger," the ratings agency noted.
"However, BHP Billiton will benefit from a streamlined business structure and better average position on the commodity cost curve, which will help the company navigate the depressed commodity prices environment."
Rio Tinto held its A- rating, but Fitch expects that it will be free cash flow negative over the next couple of years, due to the weak price forecasts for its main product, iron ore.
"Although Rio Tinto benefits from a leading iron ore cost position, the high percentage of revenue and EBITDA (pre-tax profit) generated by that single commodity exposes the company to significant risks."
Anglo American is rated BBB, with more debt relative to its earnings than the two Anglo-Australian firms.
