Moody's revises rating outlook for Rio Tinto

New York, November 06, 2008 -- Moody's Investors Service revised the rating outlook for the Rio Tinto Group rated companies to developing from positive. At the same time, Moody's affirmed the A3 senior unsecured rating and Prime-2 short-term rating of rated entities within the Rio Tinto group

The change in outlook reflects Moody's view that Rio Tinto's 2009 performance will be adversely impacted by the negative market conditions in and outlook for key metal markets such as copper and aluminum over this time frame, production and grade challenges at certain copper operations, and the likelihood that iron ore prices in the next contract renegotiation period will be challenged given the slowdown in global steel production. Although Moody's expects earnings to remain at relatively decent levels given Rio Tinto's broad operating footprint, the lower cash generation, in combination with continued high debt levels, is pressuring the company's ratings.

The outlook change also incorporates the slower than anticipated progress on asset sales to reduce the debt incurred to acquire Alcan in late 2007 and the likelihood that given the turmoil in financial and business markets, proceeds could be less than anticipated thereby further slowing the rate of debt reduction and contributing to relatively weak coverage and liquidity ratios.

However, the developing outlook considers that Rio Tinto remains the target of an unsolicited offer from A1-rated BHP Billiton to acquire the company. The outcome of this potential transaction remains uncertain, but the developing outlook captures the potential that should the transaction close as currently outlined, Rio Tinto's ratings could be favourably impacted.

Moody's will continue, over the next several months, to monitor developments with respect to both the potential take over by BHP Billiton and Rio Tinto's progress on asset sales and debt reduction as well as its capital and other spending plans. To the extent the financial and liquidity profile remains challenging, the rating would likely be adversely impacted.

Moody's notes that Rio Tinto has approximately $8.9 billion of debt maturing in October 2009 arising from the financing of the Alcan acquisition. Liquidity to support includes cash flow generation, cash position ($1.7 billion at June 30, 2008, which Moody's expects to be lower by year-end), $2.3 billion in bi-lateral credit facilities with varying maturities in 2011 and 2012 and a $5 billion syndicated bank revolver maturing in 2012 (Facility C under the US$ 40 billion Facility  Agreement). There are no MAC requirements in the bank facilities but therevolver includes a net borrowings/EBITDA covenant of no more than 4.5x., with which the company remains comfortably in compliance. Given Rio Tinto's announced focus on cash generation and capital investment reassessment in light of the turmoil in the economic markets and fall in metal prices, Moody's expects that the company should be able to meet the October 2008 maturity provided metals and iron ore prices do not fall materially farther from current levels.

Rio Tinto's A3 senior unsecured rating captures the extensive business portfolio of low-cost, long life productive assets, which contribute robust earnings in an upcycle expected and acceptable earnings in a downcycle. The rating acknowledges the company's leading global positions in aluminum, iron ore, and copper, its diversity in mineral positions and geographic locations, and considerable operating cash flow generating capability throughout the metal cycle. Rio Tinto's performance also benefits from the operating diversity of its businesses, which are balanced between commodity exposures and negotiated price exposure, such as iron ore and coal, thereby softening the effect of cyclical swings in any particular commodity.

The company's heightened degree of leverage and significant increase in total debt levels following the Alcan acquisition is considered in the rating. At June 30, 2008, debt to capital, using Moody's standard adjustments, was about 55% as compared with 16% at the end of 2006. The company's ability to execute on its divestiture program and reduce debt over the next twelve months will be a key factor in its rating.

Headquartered in London, England, Rio Tinto is one of the world's largest diversified mining groups with substantial interests in alumina and aluminum, copper, iron ore, coal, uranium, diamonds and industrial minerals (titanium dioxide feedstock, salt and talc). Rio Tinto generated revenues of $44.8 billion on a trailing twelve month basis to June 30, 2008.

New York
Brian Oak
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Carol Cowan
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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