* More miners likely to reveal writedowns in step with Rio
* Vale, BHP, Anglo American all carry under-performing
* BHP could face aluminium, nickel hit
* Anglo expected to write down value of Minas Rio iron ore
By Clara Ferreira-Marques and James Regan
LONDON/SYDNEY, Jan 21 Mining firms including BHP
Billiton and Anglo American are likely to follow
Rio Tinto's lead in writing down underperforming assets
by as much as $10 billion, as low prices and rising costs eat
Rio announced $14 billion of impairments last week tied to
underperforming Mozambican coal and Canadian aluminium
operations. The scale of the charge cost chief executive Tom
Albanese his job.
Rio's hit was a reminder of the mining sector's poor record
in creating value through deals. Attention has now turned to its
rivals, who may also be forced to take pain when they release
earnings in the coming weeks, due to a combination of weak
commodities prices and poor capital allocation decisions.
Rio Tinto's total writedowns over the past six years exceed
$34 billion - four times that recorded over the period by BHP
, the world's largest miner. The writedowns reflect
misjudged investments. The result - for an incoming generation
of mining bosses - is likely to be far fewer deals.
"The natural tendency is to empire build and grow sales -
there is always going to be that impetus," said analyst Nik
Stanojevic at stockbroker Brewin Dolphin.
"Right now, though, it should be at the front of CEOs' minds
that what if they do bad deals, they will be punished."
Aluminium is in focus. Brazil's Vale said last
month it would take a $1.3 billion charge on its 22 percent
stake in Norwegian aluminium group Norsk Hydro.
Analysts expect BHP to write down the book value of its
aluminium assets by $2 to $3 billion. Some reckon BHP may try to
sell the business.
Hobbled by over capacity and strong supply growth, aluminium
is trading at its lowest price since November. Even if prices
recover modestly this year to around $2,200 a tonne from a
current $2,046, as forecast by BNP Paribas analyst Steve Briggs,
it will hardly be sufficient to revive the business.
JP Morgan said in a note earlier this month that BHP's
aluminium assets carried a book value of $8.5 billion,
significantly higher than the bank's net present value estimates
of $5.9 billion. "We expect BHP to divest these assets and a
sale to trigger an impairment charge," JP Morgan said.
BHP could also take a hit in nickel.
Last year, BHP took a $450 million writedown on the value of
its Australian nickel business, dwarfed at the time by a $2.8
billion writedown on its U.S. shale gas assets.
BHP is not expected to impair its shale business further,
but its nickel woes are not over.
Unsold London Metal Exchange-held nickel stocks continue to
rise and now stand at a 33-month high of 148,000 tonnes - more
than one tenth of yearly global consumption.
Over a year ago, BHP Chief Executive Marius Kloppers warned
the nickel division, along with aluminium, "was not going to see
a lot of new investment." It is also expected by analysts to be
among the assets considered for sale as BHP narrows its focus.
According to an industry source familiar with the
operations, the message from BHP is now "if anybody is
interested in taking these assets off our hands, come and speak
Vale has said it will take a fourth-quarter $2.85 billion
pre-tax writedown on its Brazilian nickel project Onca Puma, and
investors are asking about the future of its $7 billion Goro
nickel project in New Caledonia.
ANGLO'S BRAZILIAN HIT
Anglo American, meanwhile, is expected to take the
opportunity to clear up at or before full year results next
month, the last under outgoing chief executive Cynthia Carroll.
The group's platinum arm has already announced a planned 6.6
billion rand ($740 million) writedown. That could increase as
the overhaul of loss-making Anglo American Platinum
progresses, but for 2012 numbers, the pain will come from rising
costs at its Minas Rio iron ore operation.
The Brazilian project, a bruising top-of-the market deal, is
expected to cost over $8 billion to build - over three times
original estimates, though spending is still not finalised and
the date of first production is still uncertain.
That is on top of an original price tag of $4.8 billion,
excluding the Amapa iron ore operation, which was part of the
original deal but which Anglo has agreed to sell. So far, Anglo
has spent close to $10 billion on Minas Rio - for no profit.
In a November note entitled "minus Rio", Deutsche Bank
analysts estimated a writedown totalling as much as $7 billion
for Minas Rio and Amapa, already written down by $1.5 billion in
Anglo's 2009 numbers. Other analysts put the figure below $5
billion - the rough amount invested by Anglo so far to develop
the asset - with Liberum estimating a hit of up to $3 billion.
Anglo American is struggling to contain the cost of Minas
Rio - driven up by permitting and other delays -- has mandated a
review. It may also consider bringing in a partner.
Rio Tinto reports 2012 earnings on Feb 14 and Anglo American
on Feb 15. BHP discloses first-half 2012-2013 results on Feb 20.
Anglo and BHP declined to comment.