South32 Ltd.

The stable outlook on South32 Ltd. reflects our view that the company's strong balance sheet provides it with a comfortable financial cushion and rating buffer to pursue growth opportunities or weather potential weakening in trading conditions. To maintain the 'BBB+' rating, we expect South32's adjusted funds from operations (FFO) to debt to be more than 45% while its free operating cash flow remains positive through the cycle. If trading conditions are favorable, we expect the company's credit metrics to be well above these thresholds. Although less likely over the next two years, we could lower the rating if South32's credit metrics deteriorate, including its adjusted FFO-to-debt ratio falling to less than 45% on a sustained basis. This scenario could occur

...South32 Ltd.'s commitment to a conservative capital structure and low leverage supports a strong balance sheet through the cycle. The company's actively managed balance sheet enabled it to maintain adequate rating buffer and overcome tough trading conditions in 2016 that affected its main commodities. This has allowed South32 to capitalize on the commodity price recovery over the past two years, and fund its recent acquisitions. The highly cyclical mining industry tempers our favorable view of South32's competitive position and portfolio diversity. The company's operating results and credit measures are sensitive to volatile commodity prices¡-albeit South32 is currently benefiting from favorable pricing conditions. The completed acquisitions of Arizona Mining (South32 100% share) and Eagle Downs (South32 50% share) do not materially change South32's country risk exposure. Arizona Mining's Hermosa Project is based in Arizona, U.S., and Eagle Downs' operations are located in Queensland, Australia....

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