BHP writedown sparks concern of further impairments

BHP Billiton's massive writedown of its US shale gas assets has sparked concerns of  further billion-dollar impairments in other parts of the business, particularly in its struggling aluminium operations, ahead of the full-year results due in two weeks' time.

The company announced the $2.84 billion gas writedowns on Friday, and in addition a separate $450 million off the Nickel West nickel arm. It said the carrying value of all its assets would be finalised in conjunction with the 22 August results.

BHP watchers expect the company to follow the lead of Rio Tinto, which in February cut $8.9 billion off the value of its aluminium business, which is based on the disastrous $40 billion Alcan acquisition in 2007.

Analysts expect BHP to cut $1 billion-$2 billion of aluminium carrying values, mainly as a result of the cost overruns at its Worsley alumina refinery, which it owns 86 per cent. The cost of the WA project expansion has blown out from $1.9 billion to $3 billion.

They say the aluminium market was not great, but most of the write down would relate to Worsley because of massive cost blowouts, which would obviously hurt book value.
On Friday, BHP chief Marius Kloppers and petroleum chief Mike Yeager announced they would forgo short-term bonuses after reduction of the carrying value of the Fayetteville shale assets by $2.84 billion.

The assets, acquired from Chesapeake Energy in February last year for $4.75 billion, helped US domestic gas prices skid almost 40 per cent.