Moody's Affirms Anglo American's Baa2 Rating And Negative Outlook

(Alliance News) - Moody's Investors Service on Wednesday affirmed its Baa2 rating for Anglo ...

Alliance News 26 November, 2020 | 5:46AM
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(Alliance News) - Moody's Investors Service on Wednesday affirmed its Baa2 rating for Anglo American PLC, but also kept its negative outlook for the miner, reflecting the credit agency's downgrading of South Africa's sovereign rating.

Moody's said that the affirmed Baa2 rating reflected the agency's expectation of Anglo American's operating and financial performance to recover from its decline in the first half of 2020.

For the six months to June 30, underlying earnings before interest, tax, depreciation and amortisation was down 39% year-on-year to GBP3.35 billion from GBP5.45 billion. This was due to a decrease in price for the Anglo American's basket of products and the impact of Covid-19 on production across its southern African assets.

The mining company's revenue in the first half was down 16% to GBP12.47 billion from GBP14.77 billion the year prior.

Moody's anticipates that Anglo American's second half results will benefit from a recovery of mining volumes and improving profitability which will continue into 2021.

"Moody's expects that Anglo American's financial profile will strengthen in the next 12 - 18 months driven by a recovery of the mining production levels and higher commodity prices most notably for copper which currently trades above USD3 per pound, significantly above the average of around

USD2.50 per pound during the first half of 2020. Moody's also projects that the diamond market

will recover in 2021 in line with global GDP recovery which should boost Anglo American's diamond earnings which were close to zero in the H1 2020," the agency stated.

However, the negative outlook reflects the outlook also given by Moody's for South Africa itself, noting that Anglo American still has a large exposure to the country, with an estimated 40% to 45% of Ebitda generated in South Africa.

On Friday last week, Moody's had decided to downgrade South Africa's sovereign rating to Ba2 from Ba1.

"Moody's notes the announcements made by the South African Minister of Finance during a February 2020 budget speech which included the announcement of a shift from the current policy of exchange controls to a risk-based capital flow management system. This could provide companies in South Africa, including Anglo American, with increased flexibility to manage cash resources to optimal effect in the future. Anglo American has operated successfully in South Africa for many decades and Moody's does not expect a moderately weaker sovereign creditworthiness to impact the company's South African operations materially," the agency continued.

By Dayo Laniyan;

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