BHP faces its worst loss: $US6.8bn

BHP Billiton will tomorrow unveil its worst-ever loss and one of the biggest in Australian corporate history.

BHP shares

BHP Billiton will tomorrow unveil its worst-ever loss and one of the biggest in Australian corporate history as its bottom line bears the brunt of softer commodity prices, writedowns and the Samarco tailings dam disaster.

The mining giant is expected to announce an eye-watering headline loss of $US6.8 billion ($8.9bn) when it hands down full-year results that will be exacerbated by a series of impairments and provisions.

BHP’s 600,000 Australian shareholders will feel the impact of the bleak result on their hip pocket, with the expected US32.5c per share dividend to be the lowest from the company since 2005. A year ago, when the company still operated under its now-abandoned progressive dividend policy, BHP paid out a final dividend of $US1.24 per share.

Tomorrow’s result reflects BHP’s $US4.9bn post-tax writedown earlier this year on the value of its onshore petroleum assets in the US, which have been hit hard by the slump in oil and gas prices. The company also announced late last month that it would recognise a $US1.1bn-$US1.3bn provision to reflect its share of the clean-up bill from the Samarco disaster in Brazil, as well as up to $US175 million in charges associated with redundancies and closures.

Some 19 people were killed when a tailings dam at the Samarco iron ore project in Brazil — a 50-50 joint venture between BHP and Vale — collapsed last November.

UBS analyst Glynn Lawcock warned in a research note that there was the possibility of further writedowns on its US onshore oil and gas business given the continued deterioration on the futures curve for oil. “This represents BHP Billiton’s largest corporate loss since the formation of the (dual-listed structure in 2001) and we believe the largest reported loss for BHP since its inception,” Mr Lawcock said.

Concern about BHP’s ongoing valuation of the US onshore business has also been flagged by analysts at Credit Suisse, who noted last week that the miner needed oil prices to recover relatively quickly.

“The obvious challenge here for BHP is to continue to support a carrying value of $US13bn for US Onshore which we value at $US8.3bn and for which the level of certainty around valuation is low,” the analysts, led by Paul McTaggart, wrote last week.

At an underlying earnings level, BHP’s estimated return of just under $US1.1bn will be its worst full-year figure since 2001.

On a somewhat brighter note, there are expectations that tomorrow’s numbers should represent the bottom of the earnings cycle.

According to Bloomberg data, analysts are expecting BHP’s earnings to rebound to about $US2.35bn in the current financial year and increase to $US7.7bn by the 2019 financial year.

BHP chief executive Andrew Mackenzie is likely to be pressed for his thoughts on the new $5 per tonne iron ore royalty proposed by Western Australian Nationals leader Brendon Grylls. Under the plan, BHP and Rio Tinto would be required to pay the additional royalty as part of an effort to improve that state’s balance sheet.

BHP’s Australian-listed shares last traded at $20.68 on Friday.