Global mining giant BHP (ASX:BHP) is mothballing its Western Australian nickel operations citing oversupply and lower forward consensus prices for the battery metal.
The $220.9 billion miner told the market late yesterday that the Nickel West operations and its West Musgrave project will be temporarily suspended from October 2024.
“The decision to temporarily suspend Western Australia Nickel follows oversupply in the global nickel market,” BHP says.
“Forward consensus nickel prices over the next half of the decade have fallen sharply, reflecting strong growth of alternative low-cost nickel supply.”
Since the 2020 financial year BHP has invested approximately US$3 billion ($4.4 billion) to sustain its Western Australia nickel operations, but has recorded negative cash flow every year.
The company expects to book an underlying earnings before interest, taxes, depreciation and amortisation loss of around US$300 million for the 2024 financial year.
BHP commenced a review of the operations and a non-cash impairment charge of about US$3.5 billion pre-tax against the carrying value of Nickel West back in February.
As a result of the decision to temporarily suspend operations, BHP expects to recognise a further non-cash impairment charge of US$300 million pre-tax in its fiscal 2024 financial statements.
Australian Resources Minister Madeleine King says BHP’s decision to suspend Nickel West is disappointing.
“It’s a hard day for workers and WA and it reflects the extreme volatility in global nickel markets,” she says.
“Global nickel prices averaged more than US$25,000 a tonne in the 18 months from the start of 2022. It is now US$16,725 a tonne. This has put substantial pressure on BHP’s Nickel West operations.”
BHP says it will continue to support its workforce and local communities. Nickel West employs thousands of people.
President Australia Geraldine Slattery says every frontline employee will be offered another role within BHP.
“Best endeavours will also be made to identify redeployment opportunities for other employees engaged in the day-to-day operations of Western Australia Nickel,” she says.
“We will also work closely with local communities, traditional owners and suppliers to support a responsible transition process, which will include the establishment of a $20 million Community Fund.”
Since late last year BHP has been working with the Western Australian and federal governments on how best to respond to the sustained pressure facing the Australian nickel industry.
King says the Australian Government worked with BHP and the broader nickel sector on policy responses that would support ongoing Australian nickel production.
“We added nickel to the critical minerals list in February, making nickel projects eligible for consideration under the $4 billion critical minerals facility,” she says.
“We also announced the critical minerals production tax incentive in the May Budget.”
While BHP welcomed the initiatives, it says ultimately the market surplus and lower prices anticipated to persist through the medium term could not be countered by the policy interventions.
“The unavoidable power of these global market realities is what has compelled BHP in our decision to temporarily suspend operations in this case, not government policies,” the miner says.
Meanwhile, the Western Australian government has put in place measures to assist workers who need support in finding alternative employment, including upskilling or reskilling.
Workers can access free career support by calling their nearest Jobs and Skills Centres, which will provide one-on-one support for workers, including training and course information and help with job searching and job matching.
Western Australian Mines Minister David Michael says the decision is a reminder that the mining industry is subject to cyclical commodity price fluctuations and other market forces beyond its control.
“I am hopeful that many employees will remain with BHP given its commitment to redeploy all front-line workers,” he says.
“While this news is disappointing, job prospects in Western Australia are strong with the state’s monthly employment growing by a massive 1.8% or 28,000 people in May, the best result in the nation, while unemployment fell to 3.6%, the lowest in the country.”
Slattery says BHP will continue to invest about $450 million each year in the Western Australia Nickel facilities to enable a potential re-start.
“Western Australia remains an important investment destination for BHP globally, with investment in the state expected to be greater than $12 billion over the next five years and we will continue to work with all of our Western Australian partners to advance the economic prosperity of the state,” she says.
The shuttering of Nickel West will also impact the supply of acid to Lynas Rare Earths’ (ASX:LYC) Kalgoorlie processing facility.
Lynas has a contract with BHP Nickel West for the supply of sulphuric acid to the Kalgoorlie facility from either the Kalgoorlie nickel smelter or imported sources.
BHP has however committed to honouring its contracts for the supply of reagents in the region.
Lynas says the company will use “reasonable efforts” to supply imported acid to the Kalgoorlie rare earths facility.
BHP plans to review the suspension of its Western Australian nickel operations by February 2027.
Write to Angela East at Mining.com.au
Images: BHP
