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Rating Action:

Moody's downgrades Anglo American SA Finance Ltd's national scale rating to A2.za; negative outlook

Global Credit Research - 09 Aug 2013

P-1.za short-term rating affirmed

London, 09 August 2013 -- Moody's Investors Service (Moody's) has today downgraded the senior unsecured national scale rating (NSR) of Anglo American SA Finance Limited ('AASAF'), a subsidiary of Anglo American Plc ('Anglo American', Baa2, negative outlook), to A2.za from A1.za, with negative outlook. Concurrently, Moody's has downgraded the NSR on AASAF's Domestic Medium Note ('DMTN') programme, which is guaranteed by Anglo American on a senior unsecured basis, to A2.za from A1.za. Moody's has affirmed the company's short-term NSR at Prime-1.za (P-1.za).

RATINGS RATIONALE

Today's rating action is closely tied to Moody's recent decision to downgrade the senior unsecured ratings of Anglo American and its guaranteed subsidiaries, including AASAF, to Baa2 from Baa1, and to maintain a negative outlook on all its ratings. Moody's believes that the global Baa2 rating of AASAF maps to an A2.za rating on a local national scale rating base in South Africa. This is because Moody's rating action on Anglo American signaled that the credit profile of the issuer is weakly positioned at the Baa2 level, due to a number of factors, which include downside risks specific to its high exposure to South Africa, such as wage inflation and challenging labour relations. These remain areas of concern as Anglo American is currently negotiating with trade unions new wage agreements for its South African based platinum division, which is its more labour-intensive business in the country, and where restructuring actions should take place before the end of 2013, subject to positive conclusion of a separate consultation process with the trade unions which is currently ongoing.

The affirmation of the short term rating at P-1.za reflects Moody's acknowledgment of the strong liquidity profile of Anglo American, as well as the fact that approximately $6 billion out of the $16.7 billion of liquidity of the group as of June 2013 is immediately available in South Africa, thereby providing an important headroom for the short term liquidity needs of the large operations of the company in the country.

WHAT COULD CHANGE THE OUTLOOK UP/DOWN

Although unlikely in the near term, Moody's could consider a stabilisation of the outlook upon any development that is likely to support the financial profile of Anglo American, such as (1) the completion of a strategic partnership with another company to de-risk execution of the Minas Rio project; (2) substantial cash proceeds from any new disposal of non-core assets; and/or (3) earlier-and higher-than-anticipated benefits from the implementation of the Driving Value plan recently highlighted by CEO Mark Cutifani. Anglo American would need to achieve stronger credit metrics on a sustained basis for Moody's to consider an upgrade. Such improvements would be reflected by a Moody's-adjusted ratio of (CFO)-dividends/debt solidly above 20%, gross debt/EBITDA below 2.0x and free cash flow returning to positive territory. These improvements would likely require the successful completion and ramp up of the Minas Rio project, as well as more decisive measures taken by management to improve the overall operating profitability of the group on a more sustainable basis.

Conversely, Moody's would consider downgrading the ratings if Anglo American's cash flow generation were to further materially weaken, leading to a sharp deterioration in its credit metrics, including CFO-dividends/debt falling to less than 15% on a sustained basis, gross debt/EBITDA materially exceeding 3.0x, and EBIT/Interest coverage ratio falling below 4.5x on a sustained basis. Such a development could result from a further material deterioration in the operating environment, including a protracted weakness in commodity prices and/or further significant investment cost overruns/delays at the group's main projects, such as Minas Rio or Grosvenor. Negative rating pressure could also develop as a result of a more hostile environment for mining companies in South Africa.

PRINCIPAL METHODOLOGY

The principal methodologies used in this rating were the Global Mining Industry published in December 2009 and Mapping Moody's National Scale Ratings to Global Scale Ratings published in October 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Anglo American SA Finance Ltd is a subsidiary of Anglo American, a global leader in the mining and natural resources sectors. Anglo American operates in more than 40 countries -- Africa, Europe, South and North America, Australia and Asia -- and its core mining portfolio is well balanced between precious (platinum, diamond), bulk (coal, iron ore) and base metals (copper, nickel). In 2012, the group reported sales of $28.8 billion (excluding associates).

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Methodology published in October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Gianmarco Migliavacca
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades Anglo American SA Finance Ltd's national scale rating to A2.za; negative outlook
No Related Data.

 

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