RIO Rio Tinto Plc

SYDNEY—Two weeks ago, Rio Tinto PLC Chief Executive Sam Walsh outlined plans for the Anglo-Australian miner to cut capital returns and costs to "defend our position of strength," but that wasn't enough to safeguard its credit rating.

Moody's Investors Service lowered Rio Tinto's senior unsecured ratings to Baa1 from A3, in line with recent ratings downgrades for rival miners, which have been knocked down a notch or more amid a deepening downturn in global commodity markets.

Rio Tinto has been an outlier in the mining sector in recent times, investing in new projects and outperforming its rivals in the stock market. Mr. Walsh said Rio Tinto had "worked miracles" to cut business costs by more than US$6 billion in recent years.

But Moody's said it needed to adjust its credit rating—which can affect company borrowing costs—to reflect the deteriorating outlook for Rio Tinto's markets, particularly iron ore, which the miner relies on for the bulk of its earnings. It is the world's largest exporter of iron ore, recently overtaking rival Vale SA, but the commodity is trading near a decade low on a global oversupply.

"There has been a fundamental downward shift in the mining sector with the downturn being deeper and prospects for a recovery extended," the ratings company said. This means "increased credit risk and weaker metrics for Rio Tinto as well as the global mining sector," it said.

Rio Tinto declined to comment. Its shares were down 2.1% in Sydney on Thursday.

The company joins fellow major global mining companies BHP Billiton Ltd., Glencore PLC, Vale and Anglo American PLC in having its debt downgraded in the face of a prolonged commodities downturn.

Moody's said it could downgrade Rio Tinto's rating again if its debt-to-earnings ratio doesn't improve. It said the miner's management could find it difficult to control debt this year and doesn't expect an improvement in credit metrics until 2017.

Earlier this month, Rio's Mr. Walsh said "2016 is shaping up to be even tougher" than last year.

In 2015, Rio Tinto swung to an annual net loss of US$866 million from a US$6.53 billion profit in the preceding year.

Rio Tinto said net debt increased 10% to US$13.78 billion and that its gearing widened to 24% from 19%. The miner abandoned its policy of promising stable or rising annual payouts to shareholders and said it would spend less than anticipated on projects this year and next.

In January, it had told workers there would be a global freeze on wages.

Moody's said it has factored in Rio Tinto's moves to rein in capital expenditure and dividend expenses, but fears slowing economic growth in China will weigh on prices for metals, coal and iron ore.

China, which demanded massive quantities of natural resources as its economy expanded at breakneck speed, posted its weakest economic growth in a quarter century last year. At the same time, new mines planned when prices were booming have led to sharp increases in global commodity stockpiles.

"Supply imbalances, particularly in iron ore, the major earnings and cash flow driver for Rio Tinto, will maintain pressure on prices for several years," Moody's said.

Rio Tinto has spent billions of dollars expanding its mines but, because of weak iron ore prices, could earn less from that business this year than it did in 2006, Citi said.

Earlier this month, Standard & Poor's Ratings Services cut Anglo-Australian rival BHP Billiton's rating, as analysts raised concerns about mining companies' generous dividend policies and ability to generate cash.

Standard & Poor's also downgraded Glencore's investment-grade credit rating to just one notch above junk status, and cut Anglo American to junk.

Rio Tinto's shares are down roughly 40% over the past year, versus a 55% fall in BHP's and Vale's stock, a 60% decline in Glencore and nearly 70% slump for Anglo American.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

February 24, 2016 21:55 ET (02:55 GMT)

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