Rio Tinto, BHP Billiton, Anglo American hit with negative ratings outlook
The continual downfall in commodity prices has caused global credit ratings agency Fitch to place mining giants BHP Billiton, Rio Tinto and Anglo American on negative ratings outlooks.
The agency downgraded its outlook for BHP Billiton and Rio Tinto from stable to negative, and notified the companies for possible future downgrades as lower predictions for iron ore, copper and nickel prices are expected.
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According to Fitch, iron ore prices will hover around $50 per ton in 2015 and 2016, slightly moving up to $60 in 2017 before eventually settling at $70 per ton long-term. The prediction is based on the assumption BHP and Rio will slow their pace of capacity increase in the Pilbara, in order to sustain lower development costs.
Regardless of its recent South32 spinoff, BHP Billiton remains the top rated firm at A+ due to its superior commodity diversification.
"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."
The world’s second largest mining company, Rio Tinto, is holding strong with its A- rating, but Fitch anticipates the company will be free cash flow negative over the next few years as price forecasts remain weak for iron ore—Rio’s main product.
"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."
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Despite some positive developments, the rating agency confirmed its negative outlook on BBB-rated group Anglo American.
"Elevated leverage, which was driven by the intensive capital spending of previous years remains a primary risk, in our view, and is reflected in the negative outlook," Fitch said.
Gerald Group resolves iron ore dispute with Sierra Leone
Gerald Group, the US commodity trader, will pay Sierra Leone $20mn and cede a 10% stake in an iron ore project as part of the resolution to a nearly two-year dispute that led to the shutdown of production, the two sides revealed.
Gerald's wholly-owned subsidiary SL Mining filed for arbitration in August 2019 over a royalty payment dispute and suspended the Marampa mine the following month. Sierra Leone's government responded by cancelling its mining licence.
As part of the agreement signed on Friday, Sierra Leone will take a non-dilutable 10% stake in a new company that will replace SL Mining and resume operations at Marampa by June 1, Gerald said in a statement.
Gerald will make two $10mn payments this year and will have the immediate right to ship its current stockpile of about 707,000 tonnes of iron ore, it said.
Both sides will withdraw their legal claims before the International Chamber of Commerce (ICC) and International Centre for Settlement of Investment Disputes (ICSID), the statement added.
Gerald’s chairman and CEO Craig Dean commented: "I am delighted that we have been able to resolve our differences and have a fresh start and new beginning with the government of Sierra Leone."
Sierra Leone's Mines Minister Timothy Kabba told a news conference on Tuesday that the agreement was a milestone for the country.
"Whatever the pain we may have borne or dreaded throughout these two years ... this outcome justifies our action," he said.
Gerald estimates that Marampa holds about 1 billion tonnes of iron ore with a potential lifespan of 30 years.
Back in 2019, Dean spoke with Mining about the development of Marampa and commented: "SL Mining offers a substantial opportunity for Gerald Group as our Marampa mine in Sierra Leone is producing two million tonnes per annum of high grade iron ore in the first phase of development, with expansion possibilities of greater than six million tonnes per annum of high-grade iron ore during its operational life. If you analyse the iron ore market it has transformed, even from a couple of years ago when prices were very low. Now prices have stabilised we’re in a favourable position with our first shipments leaving for China.
"Our goal is to make ‘Marampa Blue’ an internationally recognised premium grade iron ore brand. We intend to expand the delivery of high-grade 65% iron ore concentrate to markets in Europe and Africa.”