DBRS Comments on BHP $1.2 Billion Write-Down of Ravensthorpe

DBRS notes that today BHP Billiton plc (BHP or the Company) announced it will indefinitely suspend operations at the Company’s newly-constructed Ravensthorpe nickel-laterite mine and portions of its related Yabulu processing facilities in Australia, resulting in a pre-tax impairment charge of approximately $1.2 billion to be recognized in the Company’s half-year results ending December 31, 2008. DBRS considers the suspension of money-losing operations at these facilities as mildly positive from a cash flow point of view and the write-down to be not material in eroding BHP’s $39 billion shareholders’ equity base at June 30, 2008. Accordingly, DBRS does not intend to take any rating action relating to the actions announced by BHP.

From an operations point of view, the suspension of the $2 billion expansion project so soon after its December 2007 start-up is disappointing. Ravensthorpe was expected to produce 50,000 tonnes of contained nickel plus 1,400 tonnes of cobalt per year from the open-cut mining operation and hydrometallurgical processing plant in Western Australia. The Yabulu Refinery in Queensland processes the intermediate stage nickel/cobalt product into refined metal. BHP also announced a reduction of nickel mining at its Mt. Keith operation, but with little impact on concentrate production from the operation. In addition to the write-down of assets, these reductions in nickel output will result in some retrenchment costs, which were not estimated by BHP, but are not expected to be material.

BHP remains the world’s largest mining company with dominant market positions in many commodities. Underpinning BHP’s rating is the Company’s exceptional business profile. This is reflected by: (1) BHP’s superior market position as the world’s largest mining company; (2) a portfolio of tier-one, low-cost, expandable projects; (3) a strong pipeline of internal development projects; (4) diverse product lines including petroleum, base metals, coal and industrial minerals; and (5) a diverse geographic base with 100 operations in more than 25 countries.

Notes:
The ratings of BHP are based on public information.
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Mining, which can be found on our website under Methodologies.

This is a Corporate rating.