Standard & Poor's: The Impact Of Plummeting Iron Ore Prices

Iron ore.

Falling iron ore prices has prompted Standard & Poor’s Ratings Services to take negative rating actions globally on iron ore mining companies including several in Australia

This follows the agency lowering its assumptions for benchmark iron ore prices by about 10% to US $85 per ton through 2016 from US$95 per ton.

In Australia, Standard & Poor’s has pulled down the rating for Atlas to B from B+. Ratings for BHP and Fortescue are unchanged but the agency says credit metrics will be weaker because of the fall in iron ore prices.

Here’s what S&P had to say about the trio:

Atlas Iron Ltd
The corporate credit rating on Atlas Iron moved to B from B+. The outlook is stable. The downgrade reflects an expectation of a sharp deterioration in Atlas Iron’s credit metrics in the year ending June 30, 2015, due to lower iron ore prices. The stable outlook reflects expectation that Atlas Iron will maintain strong liquidity, which is underpinned by the company’s large cash holdings, un-drawn credit facility, minimal debt refinancing requirement and reduction in capital expenditure.

BHP Billiton Ltd
The lower iron ore prices would likely cause BHP Billiton’s credit metrics to be weaker in the year ending June 30, 2015. However, Standard & Poor’s believes the company has strong financial flexibility to mitigate further falls in prices.

Fortescue Metals Group Ltd
Standard & Poor’s says there will be a material impact on Fortescue’s margin and earnings from the lower iron ore prices. However, the agency believes the company’s credit metrics will remain at levels commensurate with the BB+ rating under the revised price assumption of US $85 per ton. The company’s efforts to prepay debt and the successful completion of the 155 million ton expansion have significantly improved its cost position and its ability to weather price volatility.

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