BHP Ratings Affirmed By S&P, 0utlook Negative.

MELBOURNE--(BUSINESS WIRE)--S&P's CreditWire 6/26/98--Standard & Poor's today affirmed its single-'A' long-term and 'A-1' short-term ratings on Broken Hill Proprietary Co. Ltd. (BHP) and rated guaranteed debt issues. The outlook remains negative.

The ratings reflect a diverse portfolio of mining and metals businesses, which offsets an exposure to volatile commodity prices. BHP's adjusted level of gearing is high for the rating category and will accentuate credit risk at weak commodity prices and if key market demand levels weaken.

The company's ability to generate strong and relatively consistent cash flow throughout the economic cycle is a key rating factor. However, the fiscal 1998 cash flow-to-debt ratio of about 25% is low for the rating category and reflects the increased debt usage and the foreign currency translation of foreign-denominated debt into Australian dollars at a weaker exchange rate, compared with debt levels in fiscal 1997. Standard & Poor's expects that the cash generated from new and expanded resource projects, a more stringent allocation of capital expenditure, and asset sale proceeds will be applied to further reduce debt levels. As a consequence, the cash flow-to-debt measure is expected to improve. BHP's fiscal 1998 earnings have been affected adversely by an A$3,039 million reduction in asset carrying values, which are noncash adjustments to, and have had minimal effect on, 1998 cash flow. Debt-to-capital at May 31, 1998 was about 53%, which reflects a reduction in the equity base and the foreign currency translation effect on the reported balance-sheet debt.

The ratings also are supported by BHP's strong business position, which benefits from significant investments in mining and metals operations, particularly in iron ore and coal, with a range of additional mineral production to commence in the near term. However, if BHP maintains a large capital expenditure program, in conjunction with a weakening of the Asian markets, these factors are likely to offset the additional cash flow from the new and expanded operations. Also, disappointing earnings from BHP's Magma acquisition, as a result of operational difficulties and weak copper prices, are likely to offset the returns from BHP's other low-cost and significant copper assets. BHP is Australia and New Zealand's only integrated steelmaker, and is substantially self-sufficient in producing the principal raw materials required for steelmaking. A restructure of the Steel division is being implemented to achieve efficiency gains and to exit unprofitable commodity-based products in favor of value-added flat, roll-forming, and coating line products. BHP's Petroleum division has provided substantial returns, particularly from its extensive reserves in Bass Strait and the development of its U.K. assets.

OUTLOOK: Negative. BHP's financial performance and prudential measures are weak for the rating level, as a result of underperforming assets and significant restructuring initiatives undertaken. If BHP is to retain its single-'A' rating, the company must achieve efficiency gains, generate improving cash flows, and reduce debt, despite weaker business conditions in major markets, Standard & Poor's said. ---CreditWire

    CONTACT:  Craig Parker, Melbourne (61) 3-9250-4575
               For more information on criteria or subscriptions:
               http://www.ratings.standardpoor.com