DBRS Confirms Anglo American Rating at A (low) with Stable Trend

DBRS has today confirmed the Issuer Rating of Anglo American plc (Anglo or the Company) at A (low), with a Stable trend. The rating reflects Anglo’s diverse operations, with strong and growing iron ore and metallurgical coal businesses; its world-leading position in platinum and diamonds, plus the Company’s important operations in copper, thermal coal and manganese. In addition, DBRS has discontinued the rating of Anglo’s Convertible Bonds, due to the recent conversion and repayment of the Company’s outstanding 4% convertible bonds due 2014.

Anglo has been successfully restructuring its business by exiting low-margin or small-scale businesses while investing in long-life and high-margin operations focused on upstream resource production and with diverse geographic locations.

Anglo has generated consistent operating cash flows averaging $7.0 billion per year in the five years ending 2011, even during the sharp recession in 2009 ($4.5 billion). The recovery of commodity markets post-recession and the Company’s ongoing focus on efficiencies and business profile improvements have resulted in a recovery of credit metrics to a level currently strong for its ratings and with low debt leverage and high liquidity.

The Company continues to reshape its business profile with new capacity in iron ore, copper, nickel and thermal coal brought on in 2011, plus major investment in organic growth projects in iron ore, diamonds, metallurgical coal, and platinum under construction. Its diamonds business will be augmented by the proposed $5.1 billion acquisition of external interests in De Beers (expected to close in 2012). Anglo’s 2011 sale of a 24.5% interest in Anglo American Sur SA (AAS) for cash proceeds of $5.4 billion, has added to the Company’s 2011 year-end cash balance ($11.7 billion). In addition, Corporación Nacional del Cobre de Chile (Codelco) has announced that it has exercised its right to buy up to 49% interest in AAS. Codelco’s exercise of its right to buy an interest in AAS is being contested by Anglo, so the ultimate ownership of AAS remains uncertain.

Anglo’s near- to medium-term earnings and cash flow should decline from 2011 levels. Commodity prices have softened from the robust levels seen in H1 2011, caused by the ongoing European sovereign debt crisis and weaker demand growth from the emerging markets, particularly China. DBRS expects the Company to remain prudent with its financing strategy and its large capital expenditure program in the face of ongoing cost inflation if it wishes to maintain the strength of its credit metrics.

Notes:
All figures are in U.S. dollars unless otherwise noted.

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer and did not include participation by the issuer or any related third party.

The applicable methodology is Rating Companies in the Mining Industry, which can be found on our website under Methodologies.