OREANDA-NEWS. Fitch Ratings has affirmed BHP Billiton Plc/Ltd's (BHPB; A+/Stable), Rio Tinto Plc/Ltd's (RT; A-/Stable) and Anglo American Plc's (BBB/Negative) ratings.

Simultaneously, Fitch has assigned 'A-' rating to the senior unsecured notes issued by Rio Tinto Finance Plc, a wholly owned subsidiary of RT. The notes are guaranteed by RT. A full list of affected ratings is included below.

KEY RATING DRIVERS

The rating affirmations with Stable Outlook for BHPB and RT reflect Fitch's view that both companies are taking appropriate actions to adjust to the current weaker commodity price environment. These actions include material reductions in both capex and operating cost, and asset disposals.

Funds from operations (FFO) gross leverage for both companies at FYE14 remained elevated for their respective rating levels but we expect them to decline to within our guidelines over the next two years. FFO adjusted gross leverage of BHPB declined to 1.5x at FYE14, from 1.8x at FYE13, while RT's FFO adjusted gross leverage remained unchanged at 2.0x at FYE14. Both companies are forecast to remain free cash flow (FCF) positive over the next three years.

The rating affirmation with a Negative Outlook for Anglo American ratings reflects our view that the weak market environment for iron ore may negatively affect profitability in 2015, which along with its already high leverage (expected FFO gross leverage of 4.3x in 2015) may trigger negative rating action.

We acknowledge operational achievements at some of the group's key projects such as the commissioning of Minas Rio, the restructuring of its platinum business to ramp up production after output was negatively affected by the strike, and profitability improvement in the nickel and diamonds divisions. Nevertheless, a number of operational issues revealed at some sites will take multiple years to resolve and incur additional costs. Fitch's expectations for cash dividends and the capital requirements to complete ongoing project commitments are likely to lead to FFO leverage peaking in excess of 4x in 2015 based on our current commodity price projections. Thereafter Fitch expects FFO leverage to reduce and return to levels consistent with the current rating within two to three years.

Rating differentials among the three miners continue to be driven by comparative profitability levels and operational factors such as commodity mix and diversification, and the cost position of operations. In this respect, BHPB continues to be positively differentiated from its peers by its ownership of substantial and profitable oil & gas operations. Also, while each of the three global mining companies are meaningful producers of iron ore, copper and coal, at present, BHPB's and RT's still highly profitable iron ore operations are substantially larger than those of Anglo American.

In August 2014, BHPB announced that a new international metals and mining company will be created via a demerger from the group. The new company, which was later named South32, will be involved in coal, aluminium, manganese, silver and nickel production. Fitch does not expect BHPB to come under substantial rating pressure after the proposed demerger, depending on the details of the deal and BHPB's subsequent dividend policy.

Liquidity and capital market access remain strong for BHPB, RT and AA, and does not represent a major differentiating factor.

Today's rating actions follow an industry review, which included an analysis of forecast operational and financial profiles for each company over the next three to four years. Over this period, Fitch expects general commodity prices - including specifically for iron ore and copper - to show a gradual decline towards mean levels as commodity demand growth in China and other emerging markets slows in relative terms.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuers include:
-Gradual production ramp up at Minas Rio (Anglo American) to 26.5mtpy of iron ore by 2017
-Timely infrastructure capacity increase at Pilbara (Rio Tinto) to raise iron ore sales volumes to 360mtpy by 2017
-Transfer of debt in the amount of USD3.5bn and cash in the amount of USD1bn from BHPB to South32 upon demerger
-Stabilisation of annual capital spending to USD4bn for Anglo American, USD7bn for Rio Tinto and USD10bn for BHPB
-Negative effect on profitability in 2015/2016 caused by the weak price environment on major commodities, especially iron ore, should be partly compensated by operational efficiency improvements and local currency devaluation versus USD in main production countries (Australia, Canada, Brazil, South Africa, Chile, and Colombia)
- Price assumptions for selected commodities: iron ore (USD65/t in 2015, USD75/t in 2016 and USD80/t long term), aluminium (USD1,900/t in 2015-2016 and USD2,250 long term), copper (USD6,500/t in 2015-2016 and USD6,000/t long term), crude oil (USD67.6/t in 2015, USD55/t in 2016, USD67.5/t in 2017).

RATING SENSITIVITIES

Anglo American
Positive (not expected in the medium term): Future developments that could lead to positive rating actions include:
- Completion of the group's current portfolio restructuring programme, including full production at key development projects (e.g. Minas-Rio iron ore), leading to a sustained increase in profitability and cash flow margins to levels comparable with RT

Negative: Future developments that could lead to negative rating action include:
- Expectation that FFO gross leverage will be sustained above 3.0x by end-2016 while EBITDA margin to remain below 25% and no evidence that FCF reverses to positive

BHPB
Negative: Future developments that could lead to negative rating action include:
- Inability to complete ongoing projects within budget and on schedule
- Inability to maintain FFO adjusted gross leverage less than 1.5x on average across the commodity price cycle (FYE 14: 1.47x)
- Inability to maintain EBITDAR margin above 40% on a recurring basis (FY14: 45.6%)

RT
Positive: Future developments that could lead to positive rating actions include:
- Sustained FFO gross leverage below 1.5x (FYE14: 2.02x), together with sustained positive FCF (post capex and shareholder distributions), which could result in a one-notch upgrade to 'A'
Negative: Future developments that could lead to negative rating action include:
- Increase in FFO gross leverage above 2.0x for two successive years
- Problems at core operations or delays in bringing new development programmes into production, resulting in a material reduction in production volumes or depletion of reserves over time
- Large debt-funded acquisitions and/or a significant increase in capex resulting in sustained negative FCF

FULL LIST OF RATING ACTIONS

Anglo American:
Long-term IDR: affirmed at 'BBB'; Outlook Negative
Short-term IDR: affirmed at 'F2'

Anglo American Capital Plc:
Senior unsecured debt guaranteed by Anglo American: affirmed at 'BBB'

BHPB:
Long-term IDR: affirmed at 'A+'; Outlook Stable
Senior unsecured debt: affirmed at 'A+'
Short-term IDR: affirmed at 'F1'

BHP Billiton Finance (USA) Ltd:
Senior unsecured debt guaranteed by BHPB: affirmed at 'A+'

BHP Billiton Finance Ltd:
Senior unsecured debt guaranteed by BHPB: affirmed at 'A+'

WMC Finance (USA) Ltd:
Senior unsecured guaranteed debt: affirmed at 'A+'

Rio Tinto Plc/Ltd:
Long-term IDR: affirmed at 'A-'; Outlook Stable
Senior unsecured debt: affirmed at 'A-'
Short-term IDR: affirmed at 'F2'

Rio Tinto Finance (USA) Ltd:
Senior unsecured debt guaranteed by RT: affirmed at 'A-'

Rio Tinto Finance Plc:
Senior unsecured debt guaranteed by RT: affirmed at 'A-'

Rio Tinto Alcan Inc:
Senior unsecured debt: affirmed at 'A-'