By Robb M. Stewart
MELBOURNE--BHP Billiton Ltd.'s (BHP) goal of retaining a solid
single A credit rating hasn't been affected by the mining company's
first fall in profit in three years, and its plans to hold off
approving any new major capital spending until at least mid-2013 is
credit positive, Moody's Investors Service said Thursday.
The sovereign debt crisis in Europe and slowing economic growth
in China mean near-term risk remains, but Moody's in emailed
comments said it still expects BHP to continue to generate solid
earnings given its focus on low-cost producing assets.
Moody's said that over the medium to longer term it expects the
company's strong positions in iron ore, metallurgical coal, copper
and energy to provide it with opportunities to benefit from ongoing
industrialization in China and India.
BHP on Wednesday said its net profit fell 35% to US$15.42
billion in the year through June from a record US$23.65 billion in
fiscal 2011 thanks largely to weaker commodity prices and increased
costs. The Melbourne-based company also shelved plans to greatly
expand its Olympic Dam copper and uranium mine in South Australia,
and postponed approval for plans to expand its iron ore export
facilities in Western Australia and build a potash mine in
Canada.
"The decline in earnings and operating cash flow--combined with
a material increase in year-on-year debt levels--negatively impacts
the company's debt coverage ratios," said Matthew Moore, an
assistant vice president and analyst at Moody's. "But BHP
Billiton's credit metrics are still well within Moody's tolerance
level for its A1 rating."
He said BHP's announcement it won't approve major expansion
projects this financial year demonstrates a focus on capital
discipline and commitment to maintaining a conservative financial
profile.
Mr. Moore said the rating could face pressure longer term if
debt levels rise significantly or BHP's operating performance
declines beyond Moody's expectations.
Write to Robb M. Stewart at robb.stewart@wsj.com
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