<p>
Rio Tinto's mounting debt levels have prompted ratings agency Standard & Poor's to downgrade the mining juggernaut’s credit rating outlook from stable to negative.</p>
<p>
Earlier this month <em>Australian Mining </em>reported <a href=”http://www.miningaustralia.com.au/features/rio-posts-$3-billion-loss”>Rio announced an aggressive cost cutting regime after posting its first ever full year loss, announcing almost $3 billion in losses.</a></p>
<p>
Prompting the mining house’s <a href=”http://www.miningaustralia.com.au/features/albanese-steps-down-as-head-of-rio-tinto”>new CEO Sam Walsh to take drastic cost cutting measures across the business.</a></p>
<p>
“To do this we need to run the business as owners not managers and my immediate priority is to build more focus, discipline and accountability throughout the organisation.</p>
<p>
“Demonstrating this commitment, we will deliver our capital reduction and cost savings targets and improve performance across our business,” Walsh stated.</p>
<p>
S&P’s announcement combined with a <a href=”http://www.miningaustralia.com.au/news/iron-ore-prices-to-crash-soon-ubs”>predicted collapse of iron ore prices</a> is expected to increase the pressure on Walsh to deliver on his promise of vast operating cost cuts, asset sales and reduced capital expenditure commitments.</p>
<p>
It has been reported that the negative outlook means if the company doesn’t drastically improve its balance sheet there is about a one-in-three chance Rio could lose its converted single-A credit rating in the next twelve to eighteen months.</p>
<p>
Currently iron ore is sitting above $150 a tonne, but according to UBS analysts it may slump 54 per cent to around $US70 a tonne due to a big lift in supply from mining companies.</p>
<p>
Despite pledges to reduce the company’s spending to $13bn this year, S&P added Rio would not be able to cut debts because of its commitment to a “progressive” dividend policy.</p>
<p>
“We see a risk that Rio Tinto’s debt may rise further in 2013-14 unless the company makes large disposals or iron ore prices stay well above US$120 a tonne,” the agency said.</p>
<p>
However, Deutsche Bank analyst Paul Young told <a href=”http://www.smh.com.au/business/sampp-downgrades-rio-outlook-20130226-2f42r.html”>SMH </a>that S&P took a conservative approach when analysing Rio's future cash flows.</p>
<p>
"It's not as though they don't have (funding) options," Young said.</p>
<p>
He added that even if S&P was to downgrade Rio's credit rating, for instance, from A to BBB+, it would be temporary and would not have a material impact on the miner's funding costs.</p>
