DBRS Removes BHP Billiton from Under Review with Developing Implications and Confirms the Issuer Rating at A (high), Stable Trend

DBRS Limited (DBRS) has today removed its unsolicited Issuer Rating of both BHP Billiton Ltd. and BHP Billiton plc (collectively, BHP Billiton or the Company) from Under Review with Developing Implications and has confirmed both Issuer Ratings of BHP Billiton at A (high) with Stable trends, following the spinoff of certain of its mining assets, including aluminium, coal, nickel and manganese assets to the newly created entity South32, an independent mining company (the Spinoff). Based on DBRS’s review of the documents relating the Spinoff, DBRS believes that the Spinoff will not have a material impact on the Company’s current credit profile, as the impact on the business and financial risk is viewed as marginally negative.

The rating of BHP Billiton was placed Under Review with Developing Implications on March 18, 2015, following the release of the documentation related to the Spinoff. See the DBRS press release dated March 18, 2015, for detail.

With respect to the impact on BHP Billiton’s business risk profile, DBRS views that the Spinoff does not have a material impact on the size, scale and cost effectiveness of the Company. The Spinoff reduces the Company’s total assets by 12% (based on December 31, 2014, financials, provided as pro forma by BHP Billiton) and the Company’s EBITDA by 9.0% (based on six months ended December 31, 2014, financials, provided as pro forma by BHP Billiton and adjusted by DBRS), which DBRS views as modest given the current size and scale of the Company. Further, following the Spinoff, BHP Billiton retains all of its core assets in the petroleum, iron ore, copper, coal and potash segments, which generally have long-life reserves, are low cost and have strong expansion potential, aligning with the Company’s business strategy. The remaining assets have been subject to extensive investment in recent years, allowing them to grow significantly in the medium to long term. Although, the Spinoff reduces the Company’s product diversification by spinning off alumina, aluminium, nickel and manganese assets, BHP Billiton remains one of the largest mining companies in the world in terms of assets and cash flow and one of the most diversified mining companies in terms of products.

With respect to the impact on the Company’s financial risk profile, the Spinoff does not have a material impact on the Company’s financial metrics. Immediately following the Spinoff, all pro forma key credits metrics of the Company weakened marginally but remain in the same rating categories as they were pre-Spinoff, adequately supporting the current rating. However, DBRS takes note that BHP Billiton’s key credit metrics have been negatively impacted by the current low commodity price environment. Should the current situation persist and the Company’s credit metrics further deteriorate, a negative rating action could occur over the near to medium term.

BHP Billiton’s current rating continues to be supported by: (1) the Company’s large number of competitive resource operations, which are among the lowest-cost producers of iron ore, copper and coal. These operations generally have large, long-lived reserve bases with in-place production, processing and delivery assets that can competitively deliver products internationally, as evidenced by good EBITDA margins in BHP Billiton’s operating units; (2) the Company’s diversified natural resource base in terms of product and geography, which allows BHP Billiton to mitigate country-specific, operational and production risk and overall provides greater stability to income; (3) BHP Billiton’s size and critical mass in terms of market capitalization and total assets, which give it a competitive advantage over smaller companies in terms of technical skills, liquidity and financial capacity to develop large-scale operations; and (4) BHP Billiton’s financial metrics continue to adequately support the current rating despite having weakened over the last few years due to higher debt levels, lower net earnings and operating cash flows mainly as a result of reduced commodity prices.

Notes:
DBRS ratings of BHP Billiton plc and BHP Billiton Ltd. (BHP Billiton) are unsolicited, were not initiated at the request of the issuer, did not include participation by the issuer or any related third party and are based on public information only.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are Rating Companies in the Mining Industry and Rating Companies in the Oil and Gas Industry, which can be found on our website under Methodologies.