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 a less likely scenario 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

...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 an adequate rating buffer and overcome a weak commodity price environment in 2016. South32 was able to capitalize on the subsequent commodity price recovery, with capacity to fund internal capital expenditure, acquisitions, and shareholder returns. A diverse portfolio of 10 commodities provides some protection against price fluctuations for any given commodity. In addition, the company has a good cost position and strong market positions in manganese ore, silver, lead, and metallurgical coal; and a long reserve life. Production across multiple countries also provides some protection against jurisdiction risk. 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...

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