Anglo American Facing Downgrade to Junk Rating

anglo-americanGaborone: Mining giant Anglo American risks a downgrade to “junk” status as it faces billions of dollars of writedowns and plunging profits as commodity prices tumble.

The ratings agency Standard & Poor’s is finalizing a review of leading miners following the slide in commodities, including copper, coal, iron ore and platinum, The Australian reports citing The Sunday Times.

Anglo American, which controls the De Beers diamond group, is considered particularly vulnerable among the biggest ­diversified resource companies. It is rated BBB, which is two notches above BB+, considered “sub-investment grade” or junk.

Analysts expect Anglo to be knocked down at least one notch after the price of copper, one of its key products, fell 16 per cent last month. Standard & Poor’s could take a more aggressive stance, ­depending on the agency’s view on long-term commodity prices.

Any downgrade would heap pressure on Mark Cutifani, the Australian who became chief executive nearly two years ago with a mandate to revive the foundering company.

Anglo, founded in 1917 by Sir Ernest Oppenheimer, was once the largest miner in the world with an empire that spanned everything from platinum to paper and pineapples.

It has struggled to remake ­itself after selling many of its ­ancillary businesses and was left behind in the last round of ­consolidation that beefed up ­rivals such as BHP Billiton and Rio Tinto.

Mr Cutifani has yet to move the company beyond the legacy of his predecessor, Cynthia Carroll, who ran the company for six years. One of its biggest challenges has been Minas Rio, the giant iron ore project bought by Ms Carroll at the top of the market in 2008 for $US4.2bn.

The mine began production late last year — more than five years behind schedule and heavily over budget. Anglo spent $US10bn on top of the purchase price to bring Minas Rio to ­fruition.

It has already written off $US4bn of the project’s value. When Mr Cutifani unveils annual results in a fortnight, he is expected to announce a paper loss of up to another $US4bn. The writedown is expected to reflect the sharp fall in iron ore prices.

Anglo has been hamstrung by its South African platinum operation. Last year it increased the wages of its 40,000-plus workers to end a five-month strike.

The rival ratings agency Moody’s has also put miners on watch for downgrades, citing “slowing growth in China’s GDP, continued weakness in Europe and falling copper prices”.