What's going on?

In another sign of the mining industry�s recovery, London-based global miner Anglo American had its credit rating upgraded on Friday � indicating that it is now at a much lower risk of bankruptcy than in previous years.

What does this mean?

Just like people, companies have credit ratings too. On Friday, S&P (a major credit rating agency) said Anglo American once again qualified for an �investment grade� (IG) rating. It had been demoted to sub-IG in February 2016 when commodity prices (like iron ore) were at their lowest level and Anglo American�s heavy debt load made it more vulnerable to bankruptcy (partly because it couldn�t sell its products for as much money, endangering its ability to pay back its debt). The distinction between IG and sub-IG grades is an important one, because many investment funds don�t like to buy bonds of sub-IG companies � they are often deemed too risky.

Why should I care?

The bigger picture: Hunkering down to survive is a viable strategy during a crisis.

During the commodity price meltdown, Anglo American took drastic action to reign in costs and sell off some of its mines that weren�t essential, which reduced its debt. The subsequent big rebound in commodity prices, driven largely by the Chinese economic recovery, also played a big role in its recovery � Anglo American is now in a much safer position than it was just 18 months ago.


For markets: Mining stocks have recovered spectacularly � but the ending could have been much different.

It’s risky to own stock in a company with a heavy debt load because, in the event of a bankruptcy, those that have lent the company money (e.g. bondholders) get to take control of the company � and shareholders are usually left with nothing. When a crisis hits a heavily indebted industry, as it did in mining in 2015-2016 and banking in 2008, stock prices tend to drop sharply to reflect the higher risk of bankruptcy. When that risk lessens, the returns to shareholders can be massive: Anglo American�s stock price is now more than five times its low.