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The ratings on global diversified mining group Rio Tinto reflectStandard & Poor's Ratings Services' view of the group's strongbusiness risk profile and intermediate financial risk profile.Supportive factors for the business risk profile include itsportfolio of low cost assets, healthy margins, and low country riskwith the majority of assets located in OECD (Organization forEconomic Cooperation and Development) countries. Somewhat offsetting these strengths are exposure to volatile miningindustry and high concentration in iron ore that currentlygenerates about 73% of the company's EBITDA. The financial riskprofile is supported by moderate leverage currently, a favorablematurity profile, and strong liquidity. We nevertheless revised ourassessment to intermediate from modest previously, owing to RioTinto's capital expenditures, which are set to increase in2012-2013 beyond the levels we previously anticipated. We expectthat together with midsize acquisitions they are likely to lead tohigher debt in the next couple of years. Under the base case credit scenario that factors in Standard &Poor's price assumptions for base metals and an iron ore price ofabout USD 120 per tonne, we estimate Rio Tinto's EBITDA to be inthe range of USD 18 billion to USD 20 billion in 2012-2013. This issubstantially below the record USD 27.7 billion generated at thepeak of the cycle in 2011. S&P base case cash flow and capital-structure scenario In our basecase scenario we expect that the company's discretionary cash flowin 2012 will be negative, and adjusted debt will consequentlyincrease to about USD 30 billion from USD 23.6 billion on December31st 2011. This is based on: Lower funds from operations (FFO) compared with a high USD 20billion in 2011 Increased capex of USD 16 billion; Dividend payments of about USD 3billion USD 1.5 billion of share buybacks executed in the first quarter of2012 under the USD 7 billion program announced in 2011 Midsize acquisitions, including the purchase of 37% of Richards BayMinerals from BHP Billiton already agreed 2012 A USD 1.35 billion earn in payment received in the second quarterof 2012 from Chinese aluminum producer Chalco related to Simandouproject in Guinea. However, we factor into the rating that the company will manage itsinvestments depending on the market environment and, if prices,notably for iron ore, decline from current levels (about USD 130per tonne for 62% iron ore fines) to below USD 120 per tonne, thecompany will either reduce investments or accelerate announceddisposals. Rio Tinto has strong financial ratios based on peak cycle adjustedFFO of USD 20 billion and adjusted debt of USD 23.6 billion. Theincrease in debt in 2011 was partly driven by the USD 3.4 billionincrease in asset-retirement and postretirement obligations. S&P said that "We anticipate that the fully adjusted ratio of FFOto debt will decline from 81% as of December 31st 2011, but willremain comfortably above 40% under our pricing assumptions." It added that "The stable outlook reflects our opinion that RioTinto will maintain financial ratios that are commensurate with theratings in 2012-2013, for instance, a fully adjusted ratio of FFOto debt above 40% under our pricing assumptions. It also factors inthat the company's debt will remain at or below USD 30 billion,after our adjustments, in 2012-2013. In the event that commodityprices weaken substantially, we assume that the group would lowerspending on investments or accelerate disposals as needed toprotect its financial ratios. We could consider a downgrade if, forexample, adjusted debt increases materially above USD 30 billion orif we expected the adjusted FFO to debt ratio to tend to 35% underour 2012-2013 pricing assumptions with no near term prospects ofdeleveraging. This could be triggered by a combination of highinvestments and a weaker market environment." S&P said that "We do not anticipate an upgrade in the comingquarters, given the volatility of Rio Tinto's profits and cashflows that are dependent on iron ore prices and thus on cyclicalsteel demand, notably in China, as well as Rio Tinto's high capexand shareholder distributions, which constrain discretionary cashflow." Source - Standard & Poor's. We are high quality suppliers, our products such as China Electric Smoking Pipes , Variable Voltage E Cigarette for oversee buyer. To know more, please visits Electronic Cigarette Accessories.
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