S&P warns possible rate cut for Rio Tinto

Anglo Australian mining groupplans to cut $5bn by 2014.

Rio Tinto's office building in central Brisbane. Credit: Getty Images.

Ratings agency Standard & Poor’s (S&P) has warned the Anglo Australian mining group Rio Tinto about a possible downgrade of credit rating amid concern of increasing debts.

In its notice, S&P stressed the need for Rio Tinto to reduce costs and sell significant assets by the end of 2013. In addition S&P said there was a one-in-three chance that Rio could lose its A credit rating in the next 12-18 months if it did not improve its balance sheet.

Sam Walsh, the new chief executive of Rio Tinto, has pledged to maintain the miner’s single-A credit rating.

For the year ended 31 December 2012, Rio Tinto’s gross debt grew to $26.7bn from $21.5bn as its capital expenditure widened to $17bn due to weak commodity prices.

“We see a risk that Rio Tinto’s debt may rise further in 2013-14 unless the company makes large disposals or iron ore prices stay well above US$120 a tonne,” said S&P.

S&P said its warning for Rio Tinto came since its adjusted gross debt was above the level of $30bn. It further said that Rio Tinto may not be able to cut debts because of its dividend policy.

As part of its plans to cut $5bn of costs by 2014, Rio Tinto is planning to sell Pacific Aluminium and its diamonds business.

If Rio Tinto approves a bauxite project in Queensland and a plan to increase the capacity of iron ore mines in Western Australia, then its capex budget could also exceed $13bn in 2013.

Industry analysts believe that Rio Tinto CEO Sam Walsh, who promised significant cash proceeds by selling the company’s non-core assets, may sell the Iron Ore Company of Canada, Rio’s stake in the Rossing uranium mine in Namibia or coal mines in New South Wales.