BHP sees write-downs and redundancy costs ahead

Protestors at the entrance to Vale headquarters in Rio de Janeiro, Brazil. Mario Tama/Getty Images

BHP expects more write-downs, mainly in its coal business, to cut between $US75 million to $US150 million from underlying profit in the 2016 half year.

Redundancy costs will shave another $US25 million to $US75 million as the big miner relentlessly seeks efficiencies to bring down overheads in a lowprice commodity world.

And then there is a an exceptional item relating to “global taxation matters”. That is marked down for between US$150 and US$200 million in the June half year. This includes potential litigation and tax-related amounts.

On the plus side, BHP expects it will reverse some previous write-downs across all its minerals businesses, reflecting a slight recovery in commodity prices. The benefit of this will be between $US50 million and $US100 million.

Still to come is a red number on the Brazil mine disaster.

“We are not yet in a position to provide an update to the potential financial impacts on BHP Billiton Brasil of the Samarco dam failure,” BHP said today in its production update.

“We are continuing to work closely with Samarco and will provide an update as soon as we are in a position to do so.

“Any potential financial impacts related to the tragedy are expected to be classified as an exceptional item.”

The Fitch ratings agency says Samarco, 50/50 owned by BHP and Vale, will likely run out of cash this year.

In February, BHP posted a massive half year loss of $US5.669 billion, the big miner’s first in 16 years, cut its dividend by more than half and reorganised its management to create a leaner and more agile business.

Revenue was down 37% to $US15.71 as falling commodity prices continue to cut into the business.

In those results, BHP recorded a pre-tax impairment of $US1.188 billion or $US858 million after tax for its investment in the Samarco mine.

This is made up of $US655 million for the share of losses relating to the Samarco dam failure, $US525 million for carrying value of the investment in Samarco and $US8 million for costs directly paid by BHP Billiton so far.

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