The agency noted that the fundamental downward shift in the mining sector meant ratings needed to be recalibrated.

"The downgrade reflects Moody's expectation of weaker performance over the next two years resulting from the significant drop in iron ore prices experienced in 2015 and our expectation that prices will not likely experience any meaningful and sustained recovery through to 2017,” Moody’s vice president and senior credit officer Matthew Moore said.

But Moody’s praised FMG’s cost-cutting measures – which are forecast to result in C1 costs of just $US13 per tonne by June – though iron ore would likely remain under pressure for several years.

"Moody's expects that the lower earnings and cashflow generating ability resulting from iron price declines will lead to weaker credit metrics than previously anticipated,” Moore said.

Moody’s said FMG’s operations should remain “comfortably above breakeven levels” at around $30/t, and the lower breakeven levels combined with the company’s large cash balance of around $2.3 billion should allow it to continue to lower debt.

“It is pleasing that Moody’s has recognised Fortescue’s stronger performance, stable production profile and long life, high quality reserves,” FMG chief financial officer Stephen Pearce said.

“Our focus on successfully reducing operating and capital costs continues to offset the impact of lower iron ore prices.”

The company said the rating update had no impact on its debt capital structure.

FMG repaid $1.1 billion of debt during the December half, lowering net debt at the end of 2015 to $6.1 billion.

Shares in FMG rose by 1.7% this morning to $A2.625.