Rating agency Standard & Poor’s on Monday said it had reduced the long-term score on mining major Anglo American from ‘BBB+’ to ‘BBB’ due to the firm’s financial risk profile.

S&P said it anticipated Anglo American to produce “material negative free operating cash flow (FOCF) in 2013-2014” because of high operating costs which amount to about $7 billion per year.

“These capital expenditures are higher than we previously assumed, resulting from major cost overruns at the company’s Minas Rio project, which suffered a related $4 billion impairment,” the rating agency said in a statement.

Mineweb quoted Primary Credit Analyst Andrey Nikolaev as saying: “We expect global mining company Anglo American to generate material negative discretionary cash flow in the 2013-2014 on the back of high capital expenditures and dividends to shareholders.”

Nikolaev said he expected the firm’s leverage to surge above the stages that “we see as commensurate with an ‘intermediate’ financial risk profile by the end of 2013 and will remain elevated in 2014, despite potential mitigating actions by management.”

Nikolaev said for this reason he had now evaluated the firm’s financial risk profile as ‘significant.’”

However, he has evaluated the firm’s business risk profit as robust, though at the lower end of the metric.

“This is thanks to the group’s low cost positions in most segments, healthy margins and new production from important projects in the coming years,” Nikolaev said.

But the analysts opined that the firm’s critical flaw was in the fact that its geographic diversity was lower than its peers.

The current state of affairs in South Africa’s mining sector would be a critical issue in the analyst’s business risk evaluation for Anglo American.