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Rating Action:

Moody's changes Rio Tinto Group's and all subsidiary outlooks to stable; affirms all ratings (Baa1 sr. unsecured)

18 Aug 2016

New York, August 18, 2016 -- Moody's Investors Service, ("Moody's") changed the rating outlook for all rated entities within the Rio Tinto Group (Rio Tinto) to stable from negative. At the same time, Moody's affirmed the Baa1 senior unsecured ratings and the P-2 short-term ratings.

The stable outlook reflects our view that while prices for principal commodities comprising the company's business will continue at lower levels for a longer time frame, we expect Rio Tinto's performance to slowly improve from the weak levels evidenced in 2015, particularly in the second half. This considers the company's ongoing ability to drive out costs, its reduced capital expenditures, and reduced dividend payout going forward. The outlook also anticipates that the company will be free cash flow generative, given actions taken to date and that the liquidity position will continue comfortably above ongoing requirements. While Rio Tinto's performance in the first half of 2016 was significantly below that of the comparable 2015 period, it evidenced stabilization and improvement over the weak second half 2015 performance, despite prices remaining volatile and at lower levels. Key operating metrics in the half year to June 30, 2016, such as the EBIT margin, and EBIT/Interest showed good improvements over the second half of 2015 and positions the company more comfortably at the Baa1 rating category. While leverage for the twelve months ended June 30, 2016, as measured by the debt/EBITDA ratio, was high (with Moody's standard adjustments) at 2.9x, we anticipate, based upon performance in the first half of 2016, that this will moderate to around 2.5x for fiscal 2016. Assuming that roughly $3 billion of the company's cash position comfortably represents excess cash, net debt/EBITDA would be roughly 2.5x and 2.1x for the twelve months through June 2016 and fiscal 2016 respectively.

The improvement in operating performance reflects not only the company's actions to deal with a weak commodity price environment and slower growth in China, which accounted for roughly 42% of revenues in the first half of 2016 but also a moderate improvement in iron ore prices, a key earnings driver. Given that some of the company's iron ore sales are on a quarter lag basis, we expect the second half 2016 performance to better reflect some of the price run-up seen in recent months. Average copper prices were down relative to the second half of 2015 while aluminum prices were relatively flat. The company continues to drive costs out of its operations, achieving a further $600 million in cost savings in the first half of 2016. We expect Rio Tinto to meet its $1 billion cost reduction target in 2016.

Iron ore prices have exhibited volatility in 2016 but are up off the lows of late 2015 (dipped to high $30's/tonne) and early 2016 (traded in low to mid $40/tonne ranges). While moderation is expected from recent trading levels as new supply comes on, Rio's cost position and volume levels are expected to generate acceptable earnings. In addition, the slide in copper and aluminum prices has likely bottomed but are expected to remain within the low ranges experienced through June 2016 (aluminum average roughly $1,540/tonne and copper average roughly $4,700/tonne. Prices are expected to exhibit volatility from economic news and GDP expectations, particularly for China, interest rate movements, and foreign exchange fluctuations, particularly relative to the US dollar. While prices are expected to moderate in the second half of 2016, they are not expected to return to the low averages seen in January 2016. The stable outlook also anticipates that Rio will continue to focus on balance sheet strength.

Affirmations:

..Issuer: Rio Tinto (Commercial Paper) Limited

....Backed Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Rio Tinto (Commercial Paper) plc

....Backed Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Rio Tinto America Inc.

.... Backed Issuer Rating, Affirmed Baa1

....Backed Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Rio Tinto Finance (USA) Limited

....Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

....Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

....Backed Senior Unsecured Shelf due 2017, Affirmed (P)Baa1

..Issuer: Rio Tinto Finance (USA) plc

....Backed Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

....Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

....Backed Senior Unsecured Shelf due 2017, Affirmed (P)Baa1

..Issuer: Rio Tinto Finance Canada Inc

....Backed Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Rio Tinto Finance Limited

....Backed Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Rio Tinto Finance plc

.... Backed Issuer Rating, Affirmed Baa1

....Backed Senior Unsecured Commercial Paper, Affirmed P-2

....Backed Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

..Issuer: Rio Tinto Limited

.... Issuer Rating, Affirmed Baa1

..Issuer: Rio Tinto plc

.... Issuer Rating, Affirmed Baa1

Outlook Actions:

..Issuer: Rio Tinto America Inc.

....Outlook, Changed To Stable From Negative

..Issuer: Rio Tinto Finance (USA) Limited

....Outlook, Changed To Stable From Negative

..Issuer: Rio Tinto Finance (USA) plc

....Outlook, Changed To Stable From Negative

..Issuer: Rio Tinto Finance plc

....Outlook, Changed To Stable From Negative

..Issuer: Rio Tinto Limited

....Outlook, Changed To Stable From Negative

..Issuer: Rio Tinto plc

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

Rio Tinto's Baa1 senior unsecured rating reflects the group's large scale and low cost operations across its major segments. The group's volume levels and low cost position continue to generate good earnings and cash flow, albeit at significantly lower levels and all operating segments were free cash flow generative in 2015. The rating also considers the group's ability to continue to reduce costs from both an operating and exploration perspective, and reductions taken in capital expenditures and dividends. Since 2013, Rio Tinto has taken $6.2 billion in costs out and has targeted a further $1 billion reduction for each of 2016 and 2017. Beginning in 2016, the group has reduced its dividend payout to not less than $1.10/share from the previous pay-out level of $2.15/share, which will result in up to approximately $2 billion in cash savings. This will benefit cash flow in the second half of 2016 and in 2017.

The rating, however, considers the company's increased leverage for the twelve months to June 30, 2016 as the decline in EBITDA outpaced the level of debt reduction under the company's liability management program, which also contributed to an improved debt maturity profile. However, on an improving EBITDA profile, leverage is expected to trend back to levels more appropriate for the rating, even absent further reductions in debt. The rating considers the group's solid liquidity position as evidenced by its cash balance of $8.3 billion at June 30, 2016, which remains comfortably above operating requirements for 2016.

The ratings could be downgraded should Rio Tinto's leverage, as measured by the Debt/EBITDA ratio remain above 2.5x, (CFO -- dividends)/debt is less than 25% and liquidity contracts.The ratings could be upgraded should Rio Tinto evidence a sustainable debt/EBITDA ratio of no more than 2x and (CFO-Dividends)/debt ratio of at least 35%.

The principal methodology used in these ratings was Global Mining Industry published in August 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

The Rio Tinto Group (Rio Tinto) ranks as one of the world's largest diversified mining groups from both a geographic and product perspective with substantial interests in iron ore, ranking among the top three in the seaborne markets, bauxite, alumina and aluminum, copper, and coal, and important holdings in uranium, diamonds, and industrial minerals (borax, titanium dioxide feedstock, salt). Rio Tinto operates under a dual listed company structure, allowing both shareholders of Rio Tinto plc (UK) and Rio Tinto Limited (Australia) an interest in a single economic entity. For the twelve months ended June 30, 2016, the Rio Tinto group generated revenues of roughly $32.3 billion, approximately 7% below 2015 levels and 32% below 2014 levels.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Carol Cowan
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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