Anglo American PLC

The stable outlook on Anglo American reflects our view of the limited upside or downside prospects for the rating over the coming years. We consider that the projected credit metrics, the absolute reported net debt, and positive FOCF, together with adherence to the shareholder distribution policy, provide ample headroom within the current rating level to absorb a material decline in commodity prices. Under our base-case scenario, we forecast FFO to debt will be well above 80% (using proportionate consolidation) in the coming years, above the 60% level that we view as commensurate with the current rating under midcycle conditions. We see limited downside in the rating over the forecast horizon through 2021. In our view, the company's current debt position

...Low leverage and positive FOCF generation in the coming years position Anglo American to easily absorb ample market volatility. As of year-end 2018, reported net debt stood at just $2.8 billion compared with $8.5 billion at year-end 2016. We forecast pre-dividend generation of FOCF will remain strong, at about $3.0 billion in 2019 and falling to about $1.5 billion in 2020. We believe that with the current absolute debt level, the company's focus will move toward maximizing returns to shareholders and supporting its growth projects, rather than further reducing the debt level. Adjusted funds from operations (FFO) to debt should remain above 80% (using proportional consolidation) in 2019 and 2020, equating to a substantial cushion (about $1.0 billion FFO at constant net debt) compared with the 60% threshold for the '###' rating (under our midcycle market conditions). Competitive position should improve further in the medium term thanks to new projects like Quellaveco and additional work on...

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