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S&P lifts Glencore's outlook to positive, sees potential for ratings upgrade

S&P Global Ratings on Sept. 29 revised the outlook on Glencore Plc to positive from stable and affirmed the long-term and short-term corporate credit ratings at BBB-/A-3.

The positive outlook reflects the Swiss mining giant's strengthening financial position in 2016 and better operating performance ahead of S&P's base case price assumptions.

"We note higher price realizations in the coal, zinc, and nickel segments, lower costs, and the marketing division performing in line with guidance," the rating agency said.

The ratings action also considers Glencore's continued deleveraging of its balance sheet and positive free cash flow generation, as well as the divestments achieved so far this year.

Despite the still-volatile industry outlook, S&P expect the company to close major asset sales by year-end, supported by better operating performance and cash generation of over US$3 billion.

The positive outlook also reflects the potential for a positive ratings action due to more certainty about the company's debt reduction plans, consistent free cash flow generation. The rating agency will upgrade Glencore's ratings should it maintain stronger credit metrics amid uncertain market conditions and reinstate dividends.

"The debt reduction plan of more than $10 billion that Glencore has been delivering since September 2015 also underpins our forecast of reducing leverage," the agency noted.

S&P Global Ratings and SNL Metals and Mining, an offering of S&P Global Market Intelligence, are both owned by S&P Global Inc.