PRESS RELEASE: S&P Revises Rio Tinto Outlook To Positive; Ratings Affirmed

16th Jun 2010 18:17

The following is a press release from Standard & Poor's: -- Metals and minerals prices have rebounded after a severe downturn in 2008, and global mining group Rio Tinto has reduced its debt. -- We are revising our outlook on Rio Tinto PLC, Rio Tinto Ltd., and subsidiaries to positive from stable. -- We are affirming our 'BBB+' long-term and 'A-2' short-term corporate credit and debt ratings on the group. -- The positive outlook reflects our opinion that credit metrics could become commensurate with a higher rating within the next 12-18 months. LONDON (Standard & Poor's) June 16, 2010--Standard & Poor's Ratings Services said today that it revised its outlook on global diversified mining group Rio Tinto (comprising Rio Tinto PLC, Rio Tinto Ltd., and subsidiaries) to positive from stable. At the same time, we affirmed the 'BBB+' long-term and 'A-2' short-term corporate credit and debt ratings. "The outlook revision reflects our opinion that Rio Tinto's credit metrics could improve over the next 12-18 months to be commensurate with a higher rating," said Standard & Poor's credit analyst Alex Herbert. This is supported by a rebound in metals and mineral prices and lower debt, and comes despite the group's plans to increase capital expenditure (capex) and dividends from 2010 onward compared with 2009. In our credit scenario, using conservative price assumptions, we anticipate that Rio Tinto will remain free operating cash flow (FOCF) positive. There are downside risks to this view, notably the level of prices, and the size of capex (including up to about $6 billion in 2010), and dividends (including a cash payment in 2010 of at least $1.75 billion) in coming years. We therefore factor in management reducing such spending if necessary should prices fall, to protect credit ratios. In the year to Dec. 31, 2009, Rio Tinto's operating results weakened considerably over 2008. Adjusted EBITDA dropped by 38% to $11.7 billion, but the margin was still healthy at 28%. Funds from operations (FFO) fell by 42% to $8.4 billion, but FOCF remained positive at $3.6 billion. Adjusted debt also fell substantially, by $17.6 billion to $30.0 billion, mainly due to a rights issue, and FFO/debt was adequate at 28%, slightly down year on year. The positive outlook reflects our opinion that Rio Tinto could improve its credit metrics to be commensurate with a higher rating within the next 12-18 months. We factor in higher capex and dividends from 2010 onwards, compared with 2009, but in our credit scenario, using conservative price assumptions, we anticipate that FOCF will remain positive, and that cash flows will be sufficient to finance such spending. We consider a ratio of FFO to adjusted debt of about 35% on a sustained basis, using conservative assumptions, to be in line with the ratings. In our view, a sustained ratio of above 40% would be in line with an 'A-' rating. In the event of weaker than anticipated prices, we factor in that the group would lower spending on capex and dividends as needed to protect its credit ratios. Downward rating pressure could occur if, for example, significant capex were to lead to negative FOCF and higher debt, and credit metrics were not in line with our guidance. RELATED CRITERIA AND RESEARCH -- Key Credit Factors: Methodology And Assumptions On Risks In The Mining Industry, June 23, 2009 -- Principles Of Corporate And Government Ratings, June 26, 2007 Complete ratings information is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. 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(END) Dow Jones Newswires June 16, 2010 13:17 ET (17:17 GMT)