03/29 00:55 BHP to Take $410 Mln Charge on Venezuela Iron Plant (Update2) By Jason Gale and Dudley White

Melbourne, March 29 (Bloomberg) -- BHP Ltd., Australia's largest resources company, said it will take a charge of $410 million to write off its investment in a hot briquetted iron plant in Venezuela because of low prices and technical problems.

A review of the Orinoco plant, which produces a concentrated iron product used to make steel, showed it won't meet targets and doesn't justify further investment, BHP said in a statement to the Australian Stock Exchange.

The latest write-off brings to $1.5 billion the amount BHP has scrubbed from the value of its two hot briquetted iron, or HBI, plants in the past three years. BHP blamed a drop in demand from U.S. steelmakers, which has seen briquette prices tumble by a third, and problems during the plant's start-up phase.

``The global steel industry is under pressure and it's this sort of material that gets hit the worst,'' said Gary Armor, senior portfolio manager at AMP Asset Management Ltd. in Sydney, where he manages A$1 billion in resources stocks. ``When the steel industry is in trouble they go for the cheapest product.''

BHP shares were little changed after the announcement, which had been predicted by analysts. The stock was recently down 17 cents, or 0.8 percent, at A$19.75.

``The news out of there in the last month or so has not been good,'' Armor said. ``It's disappointing, but in the scheme of things it's not that big for BHP.''

BHP said the $410 million after-tax charge, which will be recorded in the quarter ending March 31, includes $168 million before tax for the carrying value of the asset, $313 million for debt guarantees and interest costs, and $34 million for legal and other costs.

``BHP will not invest further in this plant,'' said Ron McNeilly, president of BHP Minerals. The action is appropriate given the new information on the outlook for the investment and additional spending, he said.

Costly Steel

The plant, an equally owned joint venture between Siderurgica Venezolana Sivensa SA's subsidiary International Briquettes Holding (IBH) and BHP, cost the companies $900 million. Yet, it has barely operated at one-fourth capacity since it began production in August 2000.

BHP said it will keep its seats on the board of the Orinoco joint venture and help the project find alternative sources of funding.

The writedown by BHP comes almost a year after the company wrote off A$1.1 billion ($550 million) from the value of a similar HBI plant in Western Australia after cost overruns and delays in production.

The Melbourne-based company in December decided to keep that plant, located at Port Hedland, open after a review showed it will stop losing money in 2003.

``Everything I've heard about the WA plant is it's actually improving,'' AMP's Armor said.

Bankrupt?

Siderurgica Venezolana Sivensa said yesterday the plant needs as much as $240 million this year or it may be forced to close, putting Venezuela's largest publicly traded steel company at risk of bankruptcy.

Losses at the Orinoco plant, which makes a concentrated iron product used in steelmaking, widened fivefold in the three months to December, prompting BHP last month to review the project.

Global prices for HBI have fallen from $130 per ton to $85 a ton, according to analysts, as a slowdown in the U.S. economy has weakened demand. World steel output fell 8.1 percent last month from January, the International Iron and Steel Institute said.

Slumping steel prices and low-priced imports have led to the closure of several U.S. steel plants. Slater Steel Inc., one of North America's largest makers of specialty steel products, said yesterday it will close its Fort Wayne, Indiana, melting shop and cut 86 jobs.

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-- Carl Jenkins (somewherepress@aol.com), March 29, 2001