Fitch Downgrades Rio Tinto to 'A-'; Affirms Alcan At 'A-'

Business Wire, Oct 26, 2007

NEW YORK & LONDON -- Fitch Ratings has today downgraded the ratings of UK-based Rio Tinto Plc and Australia-based Rio Tinto Ltd (collectively, the Rio Tinto Group (RT)), following its acquisition of a majority 89% shareholding in Alcan Inc (Alcan).

The affected RT ratings are as follows:

--Long-term IDR downgraded to 'A-' from 'A ';

--Senior unsecured debt downgraded to 'A-' from 'A ';

--Short-term IDR downgraded to 'F2' from 'F1'.

At the same time, Fitch has taken the following actions in respect of Alcan:

--Long-term IDR affirmed at 'A-' and simultaneously withdrawn

--Senior unsecured debt affirmed at 'A-'

--US$3 billion revolving credit facilities affirmed at 'A-'

--Preferred stock rating withdrawn following redemption of the issues

The above actions resolve the Rating Watches applied to RT and Alcan on July 12, 2007 and May 7, 2007, respectively. The Rating Outlook for all ratings are Stable.

The downgrade of RT's ratings primarily reflects the material weakening of its credit metrics as a result of the debt funding of the Alcan transaction with pro-forma 2007 leverage (net debt/EBITDA) of approximately 2.5 times (x) based on Fitch estimates. Fitch does, however, recognize RT management's public commitment to asset disposals and accordingly has factored into the ratings the expectation of significant asset disposals (in the order of US$8-10 billion), over the next 12 months. Fitch expects that proceeds would primarily be used to reduce acquisition debt. Fitch takes comfort from RT's strong track record in delivering on targets; nevertheless, some uncertainty with regard to asset sales remains and a delay in the timing of asset sales or significantly lower proceeds would result in the agency reviewing the company's ratings.

The timing of the acquisition at or past the peak of the current commodity price cycle exposes the company to a substantial weakening of prices. Fitch, however, believes that commodity prices should remain generally supportive over the next 12 months and allow the combined group to also reduce acquisition debt from strong operating cash flows. In particular, Fitch notes the positive near-term outlook for RT's key commodities of iron ore and copper.

The acquisition of Alcan strengthens RT's overall business profile in that it provides enhanced scale, a more balanced commodity profile, and makes the group internally self-sufficient in its bauxite and alumina requirements. Fitch also notes the competitive cost position of the acquired Alcan smelting assets, including significant access to self-generated hydro electricity power. Additionally, Fitch notes that integration risk is lower than normal for a transaction of this size due to the comparatively limited operational overlap between the two companies.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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. The issuer did not participate in the rating process other than through the medium of its public disclosure.