The once proud flagship of Australian industry, BHP has been rusting badly since its poorly-timed acquisition of US copper company Magma in early 1996.

BHP revealed the full extent of its troubles on June 26 with a A$3 billion writedown, a tenth of its global asset base, which plunged its 1997/98 (June-May) results A$1.47 billion into the red.

The massive writedown eclipsed BHP's earnings of A$1.3 billion. BHP shares finished last week at A$14.09, 80 cents above their low on June 26.

"I think there is a perception that although they have done some things that are terribly wrong, and they have made some very bad strategic decisions, it is after all a first-class company," said Kevin Lourey, a dealer at Melbourne brokerage Peake Lands Kirwan.

Analysts said if commodity prices started to improve it wasconceivable BHP's share price would double in the next five years, which represented a good return for funds prepared to take a long-term view on the stock.

"In the last week we have seen the big investors buying it because they see it is going to turn around and that's going to start pretty soon now," a Melbourne-based analyst said. BHP's affairs have been under intense scrutiny since the resignation of chief executive John Prescott in April, but no more so than in the past week after it reported only its second annual loss.

Prescott left the company amid pressure from shareholders for BHP to improve its performance after two years of weak profits, project cost blow-outs and management turmoil.

The A$3 billion writedown was seen as part of this process, and the market initially applauded the tough decision to put the company's affairs in order before it appoints a new chief executive later this year. BHP shares rallied and ratings agency Standard & Poors declared its credit worthiness had not beenimpacted by the record writedown. But the company didn't count on the angry backlash of its legion of small shareholders and the brash action of dissident shareholder, Derek Turner, who called for the blood of BHP chairman Jerry Ellis.

Turner backed down on his threat to call a shareholder meeting to unseat Ellis after several conversations with the company but later said he believed Ellis would resign at BHP's annual meeting in September.However, even Turner was now optimistic about BHP's future. "I believe in the short to medium term the perception of BHP will improve and the share value will improve," Turner said last week.

BHP management may have believed the storm had passed but on Thursday the company was hit by a ratings downgrade from its other credit assessor, Moody's Investors Services.

Moody's said the downgrade reflected weaker trends in BHP's interest cover and debt ratios as well as weaker outlooks for most of the company's core markets such as copper, iron ore, steel, coal and oil. BHPaims to lift its performance by selling billions of dollars in non-core and poorly performing businesses.