BHP Billiton's alumina, nickel operations suffering amid high Australian dollar, weak prices, spurring speculation of possible writedowns, asset sales, according to report

Andrew Rogers

NEW YORK , January 23, 2013 (Bloomberg LP) – BHP Billiton Ltd., the world’s biggest mining company, said the high Australian dollar and weak prices are hurting its local alumina and nickel operations, spurring speculation of possible writedowns or asset sales.

“BHP is a likely seller of its Nickel West and aluminum businesses,” Lyndon Fagan, a Sydney-based resources analyst with JPMorgan Chase & Co., said in an e-mail after the Melbourne-based company made the comments today in its second- quarter production report.

The company in August cut the value of its nickel sites in Western Australia by $450 million as margins fell. BHP wanted to control costs and wouldn’t allocate new capital to units such as aluminum and nickel, Chief Executive Officer Marius Kloppers told the Australian Broadcasting Corp. in August, adding that its aluminum and alumina assets had been “impairment tested.”

“From a broader perspective, the strong Australian dollar and weak pricing environment continued to place pressure on the group’s Australian alumina and nickel operations,” BHP said.

BHP gained 1.3 percent to A$37.06 at the close of trading in Sydney, while the key S&P/ASX 200 Index rose 0.2 percent.

Aluminum Value

“People are wondering if BHP will write down the value of its aluminum business,” said Adrian Wood, a Sydney-based resources analyst with Macquarie Group Ltd. “With a comment like that in there, I don’t think you can ignore that potential.”

Eleanor Nichols, a spokeswoman for BHP, declined to comment on the potential of any writedown when contacted by phone, and Fiona Hadley, another spokeswoman, declined to comment on any potential sales.

After BHP reported the nickel writedown in August, Deutsche Bank AG estimated the value of Nickel West had dropped to $2.2 billion. The bank said in February that BHP may consider selling aluminum and nickel assets. BHP could potentially write down the value of its aluminum business by $2 billion to $3 billion when it reports half-year earnings next month, Goldman Sachs Group Inc. said in a report this month.

Rio Tinto Group, the second-biggest mining company, said last week it will book a writedown of as much as $11 billion on the carrying values of aluminum assets. Prices on the London Metal Exchange have fallen 7.5 percent in the past year, hurting producers such as United Co. Rusal and Alcoa Inc.

Unchanged Alumina

Alumina, a raw material in the production of the light- weight metal, is set to remain unchanged this year, Australia’s Bureau of Resources and Energy Economics said last month, while the Australian dollar has stayed above parity with the U.S. currency for more than six months, its longest stretch above that threshold on record.

Rio in October placed its Gove bauxite and alumina operation in the Northern Territory under review because of higher costs and low alumina prices. BHP’s Australian assets include the Worsley bauxite mine and alumina refinery, while Nickel West comprises mines, concentrators, a smelter and a refinery, according to information on the company’s website.

BHP last year completed a $3 billion mine and refinery expansion at Worsley, adding 1.1 million metric tons for a total production capacity of 4.6 million tons of alumina. BHP owns 86 percent of Worsley, with the rest held by Japan Alumina Associates Ltd. and Sojitz Alumina Pty.



--Editors: Keith Gosman, Iain Wilson

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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