DBRS Morningstar Confirms Rio Tinto Plc & Rio Tinto Ltd. at A (low), Changes Trend to Stable from Positive

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating for Rio Tinto plc & Rio Tinto Ltd. (Rio or the Company) at A (low) and changed the trend to Stable from Positive. The confirmation of the Issuer Rating is based on the Company’s current rating being in line with the Company’s business risk profile and its key credit metrics remaining strong for the rating (currently in the “A” category). The change in the trend to Stable from Positive is driven by DBRS Morningstar’s recognition of the negative impacts of the Coronavirus Disease (COVID-19) pandemic partially offset by DBRS Morningstar’s estimate of the Company’s strong liquidity position of approximately $18.1 billion in cash, cash equivalents, current liquid investments, and undrawn credit facilities at the end of 2019 with only EUR 401.7 million in debt maturing this year followed by EUR 416.7 million in 2024.

DBRS Morningstar believes that Rio’s robust financial position leaves it well-positioned to weather the global pandemic and the near-term demand destruction for Rio’s nonferrous commodity production—primarily copper and aluminum. DBRS Morningstar estimates that the Company’s iron ore operations accounted for approximately 60% of its 2019 revenue and notes that iron ore prices have held up much better than the nonferrous metal prices. Iron ore prices have weakened moderately to the $80 per tonne range for 62% iron (Fe) from more than $90 per tonne in January 2020 before Lunar New Year and coronavirus being declared a pandemic by the World Health Organization in early March. As such, current benchmark 62% Fe iron ore prices are now in line with the 2020 Bloomberg consensus price forecast of $80 per tonne (as of April 2, 2020). Based on Bloomberg consensus estimates of 62% Fe iron ore prices of $73 per tonne in 2021 and $69 per tonne in 2022, DBRS Morningstar expects the Company’s financial risk profile to remain in the “A” category and be supportive of the current rating in the longer term. DBRS Morningstar notes that iron ore demand and prices are being supported by Chinese demand and anticipation that the Chinese government will announce significant stimulus initiatives to return the Chinese economy to full production as quickly as possible now that the coronavirus pandemic in China appears to be waning. That said, Rio has responded to government directives by (1) curtailing its mining operations at Richards Bay Minerals in South Africa, (2) working with the Québec government to slow down noncritical projects and activities at its Québec operations, and (3) relocating its fly-in/fly-out workers and contractors to accommodations within Western Australia in order to maintain operations and be in compliance with border restrictions. The timelines for reversing these measures will be determined by government actions at a minimum but the immediate effect is that supply is being taken out of metal markets, which should provide some mitigation from the demand destruction among the Company’s customers.

If the Company preserves its economic flexibility, business risk profile, and robust liquidity as the global pandemic runs its course and remains well-positioned to take advantage of the inevitable recovery of the global economy, then a positive rating action could occur. However, a negative rating action could occur if benchmark 62% Fe iron ore prices were to decline to the low $50 per tonne range, or by about 35%, and copper and aluminum were to decline to $2.00 per pound (lb) and $0.60 per lb, respectively, or about 10% from current levels, for at least a year that results in a significant deterioration of its financial risk profile.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Mining Industry (August 2019) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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 under Related Documents or by contacting us at info@dbrsmorningstar.com.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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