Fitch: Glencore Dividend Cut Highlights BHP, Rio Inflexibility

(The following statement was released by the rating agency)LONDON, September 09 (Fitch) Glencore (LONDON:GLEN)'s decision not to pay a dividend until at least the end of 2016 highlights the benefits of a flexible dividend policy when managing free cash flow in the cyclical mining sector, Fitch Ratings says. The announcement reinforces our view that Rio Tinto (LONDON:RIO) and BHP Billiton (LONDON:BLT)'s commitment to always increasing, or at least maintaining dividends is an increasingly negative factor in their credit profiles compared to peers such as Anglo American (LONDON:AAL) (BBB/Neg), who have in the past shown more flexibility. The limited flexibility is already reflected in the Negative Outlooks on BHP's (A+) and Rio Tinto's (A-) ratings.Glencore's dividend suspension will contribute nearly a quarter towards a USD10.2bn package of measures that will be used to reduce net debt. But this option would not be open to Rio or BHP unless they dropped their progressive dividend policy, which would be difficult because of its popularity with shareholders and because of the emphasis that both companies have put on the policy.This restriction has been manageable over the past few years, despite tumbling iron ore prices, because both companies have been able to cut their operating costs and capital expenditure, often by more than their own targets. However, operating cost reductions have been helped by the fall in diesel prices. Further cost reductions are therefore going to be much harder to achieve, especially if we start to see even modest increases in the oil price. Similarly, the big reductions in capex that have been possible as the miners complete the big expansions in their Western Australian iron ore operations will not be repeated.Non-core asset sales have been used to support free cash flow. The participation of financial investors and trade buyers has arguably created a more active market than most analysts expected. But the acquisition multiples paid have often been at the low-end of expectations, limiting the benefit of the sales, and the supply of assets for sales is not unlimited, so the pace of sales will also probably decline in the future.Contact: Peter ArchboldSenior DirectorCorporates+44 20 3530 1172Fitch Ratings Limited30 North ColonnadeLondon E14 5GNSimon KennedyDirectorFitch Wire +44 20 3530 1387Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.