International credit rating agency Moody’s has announced that it has lowered the credit rating of Australian iron ore miner Fortescue from Ba2 to Ba3. The outlook on all ratings is negative.
Moody’s stated that the downgrade reflects Moody's expectation of a weaker performance over the next two years resulting from the significant drop in iron ore prices experienced in 2015 and its expectation that prices will not likely experience any meaningful and sustained recovery through to 2017. Moody’s expects that Fortescue's credit metrics will remain at weak levels for the rating over the next 12-18 months.
According to Moody’s, Fortescue has significantly increased volumes and reduced unit costs over the last 12-24 months. Moody's expects the company to continue to work to drive down cash costs while maximizing throughput of its existing operations. Reflecting the improvements in the company's cost profile, Moody's expects that Fortescue's operations will remain comfortably above break-even levels under the rating agency's base case price assumptions and near break-even under stress price assumptions, which should help to preserve cash and liquidity in this period of lower prices.