Dec. 18 (Bloomberg) -- Rio Tinto Group, the world’s third- largest mining company, had its ratings cut by Standard & Poor’s and Moody’s Investors Service because of high levels of debt and falling commodity prices.

S&P cut the long/short-term ratings to “BBB/A-3” from “BBB+/A-2” on a “sharp market downturn coupled with substantial adjusted debt of about $47 billion,” it said today in a statement. The company said the outlook for Rio’s credit assessment is “negative.” Moody’s lowered its rating on $5 billion of debt after Rio failed to meet asset-sales targets.

“The downgrade reflects our expectation that profits, cash flows, and leverage will be too weak for the previous BBB+ rating, due to a sharp downturn in global economic conditions and the commodity cycle,” S&P said.

Falling prices for copper and aluminum were “coupled with a legacy of high debt and sizeable debt maturities in both 2009 and 2010,” the ratings company said. Prices for bulk commodities like iron ore were “likely to weaken, possibly quite markedly” due to a slowdown in steel demand, it added.

Rio said Dec. 10 it would eliminate 14,000 jobs, cut capital spending by more than half and sell mines to reduce debt by $10 billion by the end of next year as demand for metals sinks. Rio needs to sell assets in months to help clear debt, Moody’s said.

Earnings, Cash Flow

Moody’s lowered Rio’s rating to “Baa1” from “A3” because earnings and cash flow will be affected by “the significant fall-off in both metal prices and demand, as well as anticipated iron ore price reductions in 2009.”

“A key factor in the company’s rating will be its ability to execute on its divestiture program and reduce debt over the next twelve months,” it said. This included the $8.9 billion due to mature next October and $10 billion due in October 2010. Moody’s has a negative outlook for Rio.

S&P’s negative outlook reflects the “high risk of a further downgrade if the group is unable to mitigate refinancing risks relating to the $8.9 billion debt maturity in October 2009,” the rating company said.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

Last Updated: December 18, 2008 09:57 EST