Mining titans earn clean bill of health

AUSTRALIA’S two major miners, BHP Billiton and Rio Tinto, would be able to survive a sharp downturn in China without major financial damage, says a new analysis.

Ratings agency Standard and Poor’s has given the mining titans a clean bill of health after stress testing what would happen to the duo if commodity prices plunged.

It follows years of deep cost cutting, debt reduction and a commitment from management at the miners to not repeat the boomtime mistakes that resulted in billions of dollars of shareholders’ money burnt in overpriced or abandoned projects.

Standard and Poor’s modelled a one-year collapse in commodity prices sparked by a sudden shock in China, which is the world’s biggest buyer of minerals such as iron ore, copper and coal.

The ratings agency concluded the world’s five biggest miners — BHP, Rio, Glencore, Anglo American and Brazilian iron ore major Vale — would survive a sudden revenue plunge without having their credit ratings cut.

“The major miners are wellpositioned to absorb a potential external shock after completing their debt reduction plans, supported by a currently low commitment to growth capital expenditure,” primary credit analyst Elad Jelasko said. “Under our stress test, an extended price shock does not lead to downgrades.”

BHP and Rio both have an upper-medium A-grade rating at Standard and Poor’s

The agency based its stress test around key commodity prices falling 10 per cent below the lows hit in 2015 that severely tested miners across the globe.

Both BHP and Rio have stripped billions of dollars from their cost bases and slimmed down their global portfolios through asset sales and spinoffs over the past four years.

Rio rewarded investors with a record dividend at its fullyear results in February while BHP shareholders are waiting on a sale of its US onshore oil and gas division.

Standard and Poor’s said the impressive recovery in commodity prices of the past two years and efficiency drives by management had turned the major miners into “cash machines”.