More Writedowns Likely for BHP

The $3.15 billion writedowns in BHP Billiton's (ASX: BHP) shale gas and nickel operations which caused the firm's chief executive to forego his bonus may not be the last for the mining giant.

Analysts pointed out that there may be more large impairments in other BHP businesses, particularly its aluminium operation for which BHP is expected to announce full-year results by the third week of August.

BHP announced a $2.7-billion gas writedown on Friday for its U.S. shale gas assets and another $450 million writedown on its Nickel West operations.

Analysts are anticipating that BHP would follow Rio Tinto (ASX: RIO) which removed in February $8.9 billion from the value of its aluminium business after its acquisition in 2007 for $40 billion of Alcan. Glyne Lawcock, UBS resources analysts, estimated a $1 billion to $2 billion writedown by BHP on its aluminium business due to its cost blowout at the Worsley alumina refinery, 86 per cent owned by BHP.

Mr Lawcock said that the cost expansion in the refinery which jumped to $3 billion from $1.9 billion will have an obvious effect of its book value.

Deutsche Bank petroleum analyst Paul Young made a similar $1.8-billion estimate of writedown on BHP's alumina assets. BHP partly owns two alumina refineries, two bauxite mines and four aluminium smelters with a total value of $4.75 billion.

BHP Chief Executive Marius Kloppers and Petroleum Chief Mike Yeager announced on Friday the reduction in the carrying value of BHP's Fayetteville shale assets by $2.84 billion. BHP bought the assets from Chesapeake Energy in February 2011 for $4.75 billion but after the purchase gas prices in the U.S. declined by almost 40 per cent.

Due to the writedown, Mr Kloppers gave up his short-term bonus although he maintained that the assets are low cost and high quality which would prove their value in the long-term.

"Our work convinced us that this significant low-carbon fuel source would play a meaningful role as the world makes its future energy choices," Mr Kloppers said in a statement.