Moody’s cuts mining giant BHP’s rating on weak commodity market

BHP Billiton’s credit rating has been cut by Moody’s as the industry battles weak commodity prices and softer demand, just a month after Standard & Poor’s also downgraded the global mining giant.

The Anglo-Australian firm last month reported a first-half net loss of US$5.67 billion and slashed dividends amid the income slump hitting miners on the back of a global economic slowdown, led by China.

“Moody’s views current weak commodity prices and softer demand as representing a fundamental shift in the operating environment beyond a normal cyclical downturn,” the ratings agency said in a statement late Thursday.

BHP’s rating was downgraded to A3 from A1 and placed on a negative outlook.

“As a result… Moody’s expects BHP Billiton’s credit metrics to remain substantially weaker, over the next 12-24 months, than historical levels and to be more appropriately aligned with a rating of A3.”

BHP said in a statement that the company “remains committed to maintaining its strong balance sheet through the cycle”.

The ratings cut followed S&P’s decision in February to cut BHP’s rating to A from A+, also citing a downturn in the commodities sector, with the cost of key materials such as oil, iron ore, copper and aluminium at multi-year lows.

“When you lose nearly Aus$8 billion in profits from price movements that are beyond your control and the industry is still somewhat unstable, then you would expect that the rating houses would have moved to downgrade BHP’s credit rating,” Fat Prophets resources analyst David Lennox told AFP.

“They’ve still kept it within investment grade, however.”

Moody’s investment-grade rating is usually seen to be at least Baa3, with lower credit ratings raising the cost of borrowing. A “junk” rating is Ba1 or lower.

Major miners such as BHP and Rio Tinto have ramped up output, cut costs and dumped their progressive dividend policy, in which shareholders are given gradually higher payouts, to combat the headwinds in the industry.

Meanwhile, Moody’s said the US$6.2 billion settlement by Samarco, co-owned by BHP and Brazil’s Vale, announced Thursday over a fatal mine disaster in Brazil “lessens the uncertainty around potential liabilities for BHP Billiton”.

Moody’s said it expected BHP to be able to fund its share of the settlement’s payments “within the rating parameters” should Samarco not be able to meet the obligations.