Moody’s has downgraded Anglo American to a negative outlook.
It yesterday downgraded the senior unsecured ratings of the miner and is subsidiaries from Baa3 down to Ba3, and converted the company’s Baa3 long term issuer rating into a Ba3 corporate family rating.
“Today's downgrade of AAL's ratings to Ba3 from Baa3 primarily reflects Moody's assessment 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,” the investors service said in a statement.
“Moody's assessment of a higher business risk reflects concerns over the potential for a further deterioration in AAL's bulk commodities portfolio, particularly in iron ore, amid low commodity prices.”
Anglo American joins BHP and Glencore, whose ratings have both been downgraded on the back of the mining downturn.
Standard & Poor’s downgraded BHP’s credit rating due to a forecast ‘material drop’.
“Under various scenarios, we now forecast BHP could see its ratio of funds from operations to debt fall to 30-40 per cent over 2016 and 2017, well below our threshold for an ‘A+’ rating,” the agency said.
“We are therefore lowering the ratings on BHP to ‘A’ from ‘A+’ and placing [the firm] on CreditWatch with negative implications.”
It also downgraded Glencore’s rating from BBB to BBB– due to lower forecasts for copper, coal, and oil.
The downgrade reflects “the very challenging market outlook and the increased uncertainty about demand,” S&P stated, going on to explain that outlook for Glencore’s rating was overall stable.
“We believe the ‘BBB-’ rating has more sustainable headroom, particularly in the prevailing low price environment, and we anticipate significant further debt reduction in 2016.
“We expect rating headroom to materially increase over the coming quarters, as we anticipate significant further debt reduction through disposals.”
However Moody’s was not as optimistic on Anglo American’s future, despite its ongoing ‘radical restructure’ plan of divesting non-core assets and slashing its workforce by close to two thirds.
“Moody's notes that AAL is working on plans to reduce debt as part of the restructuring plan and indicated it may consider divestments to help reduce debt in the near term.
“Pending further announcements by the company, the rating agency believes that divestments of non-core assets would be difficult to execute in the current environment, particularly at valuations to allow deleveraging from the current level,” it said.
Analysts have pointed to the miner facing issues not only around finding buyers for its now unwanted assets as commodities sit at historic lows, but also the associated social costs to simply shutting the unprofitable operations.
“Closing down unprofitable mines has proven difficult given the political sensitivities around employment,” Richard Knights, a mining analyst at Liberum Capital, told Bloomberg.
“While Moody's recognises that AAL retains a number of options to raise capital and to accelerate debt reduction, the rating agency considers the deleveraging prospects to be uncertain and does not factor future divestments into its base case assessment,” Moody’s said.
The investor service went on to outline the severity of this current downturn, stating, “the downgrade of AAL's ratings reflects Moody's view that the current environment is not a normal cyclical downturn, but a fundamental shift in the operating environment for the global mining sector.”
“The Ba3 rating therefore takes into account the ongoing wholesale recalibration of Moody's ratings in the mining industry initiated earlier this year. With the downturn likely to be deeper and longer than previously anticipated, the rating agency believes that price risk remains to the downside, given global economic uncertainties and slowing growth in China.”
Anglo American CEO Mark Cutifani, and former Rio Tinto chief Tom Albanese have previously pointed to the ongoing weakness the mining sector can expect in the coming months.
“This is exactly where we were in the late 1990s,” Albanese, told Bloomberg Television.
“The survivors were the ones that enjoyed the benefit when China kicked in starting in 2003. Those who can manage their balance sheets the best in this period of time, manage their assets the best, stay opportunistic. We could be OK.
“We’re all quite hesitant to say to say the bottom is here and has turned.”
Cutifani gave a similar outlook, talking of ‘grim’ markets and more job losses ahead for the industry at a mining industry event earlier this week.
“Things may still get worse before they get better,” Cutifani said.
“We can’t rely on a reversal of this price slump any time soon. For many of us in the industry, 2016 is already shaping up to be the most challenging yet.”
He went on to state that no miner has been untouched by the downturn, a fact now compounded by his company’s downgrading.