BHP's credit rating remains high despite plummeting iron ore prices

International credit ratings agency Standard & Poor's has announced that it has affirmed its 'A+/A-1' ratings on Australia-based mining company BHP Billiton, with the company's outlook remaining stable.
 
S&P stated that the ratings affirmation reflects the view that BHP Billiton will be able to maintain its financial metrics within its rating expectations despite weakening iron ore prices. However, the agency warned that BHP's rating buffer might diminish due to the increase in debt in the financial year 2011-2012 and the weaker commodity prices.
 
Iron ore prices are likely to stay low until the end of the calendar year 2012. Since iron ore accounted for 30-50 percent of BHP's earnings over the past three years, a steep and continuous decline in iron ore prices will moderately reduce BHP's earnings and cash flows.
 
S&P noted that BHP Billiton, compared to its peers, has the best asset diversity and is the most financially flexible to respond to weakening commodity prices and suggested that the company can reduce its US$22 billion capital expenditure to preserve cash.
 
According to S&P, an upgrade is less likely in the near to medium term, unless the company adopts a more conservative financial policy or reduces its earnings volatility.