S&P warns of Rio Tinto rating cut on debt concerns

Rio Tinto risks losing its single-A credit rating due to a sharp jump in debt, Standard & Poor's said, warning that the Anglo-Australian mining giant may have to sell off assets to balance its books.

The ratings agency lowered its outlook on Rio's credit rating to negative from stable, saying that the firm's gross debt had surged to $26.7 billion by the end of 2012 from $21.5 billion at the start of the year.

"The negative outlook indicates a one-in-three chance of the rating being lowered in the next 12 to 18 months," S&P said late Monday.

"This could for example be triggered by further increase in debt or declining iron ore prices to $120 per tonne or below."

Rio Tinto, whose shares slipped 0.88 percent on Tuesday, posted its first annual loss in 18 years earlier this month, plunging $2.99 billion into the red on hefty writedowns on its Mozambique coal and aluminium businesses.

Rio said the loss for 2012 -- its first since becoming a dual listed company in 1995 -- had also been due to a dip in commodity prices which had wiped $5.3 billion off the bottom line.

Iron ore plunged 24 percent compared with 2011, copper was 10 percent lower and aluminium was down 16 percent.

Incoming Rio Tinto chief executive Sam Walsh, due to formally take charge in July, has vowed "aggressive" cost-cutting to achieve savings of more than $5 billion by the end of 2014 and reduce capital expenditure to $13 billion this year.

The risk of a credit downgrade "may be mitigated by management's commitment to the current rating level, its substantial cost reduction program, and its commitment to reduce leverage through (large) disposals" in 2013 and 2014, S&P said.

A slowdown in China and debt strains in Europe and the United States have weighed on mining companies in the past 12 months, with projects delayed or shelved as commodity prices have plunged on a drop in demand.