So far in 2017, 18 metals and mining companies have had their long-term credit ratings upgraded for a total of 20 actions by S&P Global Ratings and Moody's Investor Service, compared to 2016 when 17 companies experienced an increase for a total of 27 actions for the entire year. This boost in upgrades early in the year comes as S&P increased price assumptions for some commodities on Jan. 17. Copper, iron ore and zinc price assumptions were revised upward, while gold was revised downward and aluminum and nickel remained flat. In addition, efforts to reduce debt and control costs seem to have paid off for some miners in the eyes of the rating agencies.
2017 has started out with very few downgrades, with only three actions reported for three separate companies. In comparison, downgrades dominated 2016, with 51 companies experiencing a decrease in their credit rating, out of a total of 86 rating actions. It mimicked the previous year, when downgrades were also prominent versus other rating action types, as noted in a 2015 review.
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Out of the 2017 rating actions, Rio Tinto was one of the largest companies to receive a long-term credit rating upgrade. On Feb. 27, Moody's upgraded the company to A3 from Baa1, attributing the change to cost and debt reduction, divesting assets and adjustments to its dividend program. Earlier in February, Rio Tinto announced earnings of US$4.62 billion for 2016, compared to a net loss of US$866 million in the previous year. Also, Moody's mentioned their low cost iron ore properties, specifically those in Australia, as large contributors to their action.
Fortescue Metals Group Ltd. was another iron ore miner that was upgraded, and now sits only one notch below investment grade. On Jan. 19, Moody's boosted the company to Ba1 from Ba2, and on Dec. 19, 2016, S&P increased the company's rating to BB+ from BB. Both rating agencies mentioned the company's continued debt cuts, citing its December 2016 debt repayment announcement of US$1 billion. Also, with the company's portfolio focused on iron ore, cost-cutting measures have reduced their break-even price and created a buffer to help manage potential volatile price changes in the future.
One of the newer upgrades reported was for Glencore Plc. On March 10, S&P increased its rating to BBB from BBB-. This is a bounce-back following S&P downgrading the company in February 2016 to BBB- from BBB and then affirming that rating in September last year. S&P noted this improvement was supported by a decrease in the company's debt levels in 2016 and dependent on moderate capital expenditure in the future.
More than half of the downgrades reported by S&P and Moody's for 2016 were in the March quarter, with each following quarter for the year seeing fewer and fewer downgrade actions. Early in 2016, big mining sector players like BHP Billiton Group and Vale SA experienced credit rating decreases. Since then, S&P affirmed BHP Billiton's A rating in both February 2016 and January 2017, and Moody's kept its A3 rating as of Nov. 25, 2016. Vale had its S&P BBB- rating affirmed on Aug. 29, 2016, and Moody's Ba3 rating on Nov. 4, 2016. Both rating agencies noted there was ongoing improvement in their credit metrics and their confirmed ratings reflect a rally in some commodity prices in the latter part of 2016.
Out of the three metals and mining companies downgraded in 2017, Cameco Corp. was the most recent. S&P lowered its credit rating to BBB from BBB+ on Feb. 24. S&P noted financial results for the company were weaker than expected on top of the lower market conditions for uranium. Cameco reported a C$62 million loss compared to a net profit of C$65 million a year previously. S&P also cited the contract dispute with Tokyo Electric Power as another unanticipated event that will affect the company's earnings going forward.
Prominent potash and phosphate miners and suppliers, Mosaic Co. and Potash Corp. of Saskatchewan Inc., were also subject to lower credit ratings. On Dec. 19, 2016, S&P downgraded Mosaic to BBB- from BBB, and on Nov. 1, 2016, Moody's downgraded Mosaic to Baa2 from Baa1. S&P's downgrade action comes the same day that Mosaic announced the planned acquisition of Vale's fertilizer business. S&P pointed to the timing of the deal, with lower fertilizer prices in 2016 adding pressure on the company's credit rating. Also, Moody's lowered Potash Corp to Baa1 from A3 on Nov. 4, 2016, and earlier in the year in April, S&P downgraded the company to BBB+ from A-. Moody's specified lower fertilizer market conditions as well when explaining its downgrade action.
Looking at the results as a whole, the initial credit ratings reported for 2017 are promising and a change from the previous two years.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.
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