Rio Tinto faces lower metal, asset prices-Moody's

MELBOURNE, Nov 7 (Reuters) - Global miner and takeover target Rio Tinto Ltd/Plc will lose income in 2009 as prices for key products such as copper, aluminum and iron ore decline, and as the value of assets it plans to sell slips, rating agency Moody's said on Friday. Moody's said it may lower its A3 senior unsecured rating on Rio Tinto as the company generates lower cash and battles high debt levels after its $38.1 billion purchase of Canadian-based Alcan last year. Rio is trying to fend off an around $70 billion all-share takeover offer from rival BHP Billiton Ltd, rated A1 by Moody's. "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," Moody's said. "To the extent the financial and liquidity profile remains challenging, the rating would likely be adversely impacted," it said. World prices for the millions of tonnes of mineral commodities that Rio and BHP churn out have collapsed amid concern over falling demand and mounting supply gluts. Moody's said planned asset sales by Rio to reduce debt would be slower than planned and could bring in less cash than hoped. Rio Tinto has around $8.9 billion of debt maturing in October 2009 arising from the financing of the Alcan acquisition. "Moody's expects that the company should be able to meet the October maturity provided metals and iron ore prices do not fall materially further from current levels," it said. At June 30, 2008, debt to capital, using Moody's standard adjustments, was about 55 percent, compared with 16 percent at the end of 2006. A combination of BHP and Rio would create a mining group controlling more than a third of the world's seaborne trade in iron ore, the main raw material for steelmaking.