S&P cuts Anglo American outlook to negative on South African strikes.

By bne IntelliNews October 18, 2012
Standard & Poor's Rating Services revised its outlook on global mining giant Anglo American to negative from stable due to the strikes at the companys South African mines. The ratings on Anglo American are influenced by those on South Africa and the South African country risk environment since the miner generates more than half its EBITDA in South Africa, S&P said. We believe that the country risk mining companies face in South Africa has increased and that the lower commodity price environment could weaken Anglo American's credit ratios, it added. S&P lowered on October 12 South Africas long-term foreign currency sovereign credit rating to BBB from BBB+, saying mining strikes and social tensions are likely to dent business and investment climate, hurt economic growth and weaken fiscal flexibility. The global ratings agency affirmed Anglo American's BBB+/A-2 long- and short-term corporate credit ratings. It noted that the miners iron ore, platinum and coal operations in South Africa made up about 50% of its 2011 EBITDA, giving it greater exposure to the country than peers such as Xstrata (BBB+/Negative/A-2) and Rio Tinto (A-/Stable/A-2). S&P said that the risk of further deterioration of Anglo Americans profits and cash flow will increase if strikes in the platinum segment continue and if further strikes do not allow the company to promptly restart its Kumba Iron Ore operation after the illegal occupation of its Sishen mine was brought to an end by police on October 16. Kumba Iron Ore alone contributed 39% of EBITDA in H1 2012. S&P said it would lower the ratings on Anglo American if its concentration in South Africa remains high and country risks remain elevated and if the company loses substantial production and cash flow from South Africa, due to protracted strikes continuing into 2013. Kumba, which hopes to resume full production at its huge Sishen mine as soon as possible, has said it was losing approximately 120,000 tonnes per day of finished product due to the industrial auction. Anglo American Platinum (Amplats) has lost production equal to 67,000 ounces, resulting in approximately ZAR 1.1bn (EUR 97mn) of lost revenue, due to the four-week illegal industrial action by employees around its Rustenburg, Union and Amandelbult mining operations in South Africa. The strikes are continuing and the average loss of platinum production is 3,800 ounces per day.

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