BHP suffers $5.4b nickel wipeout, WA business under review

Feb 15, 2024 – 10.04am

Jessica Farrell of BHP during the first nickel emergency meeting with federal Resources Minister Madeleine King in Perth last month. Trevor Collensnone

BHP’s nickel business and thousands of jobs in Australia are hanging by a thread,the mining giant declared on Thursday, after losing $US200 million ($308 million) on its West Australian operation in a first-half result crushed by oversupplied nickel markets.

BHP decided to take a $US3.5 billion pre-tax or $US2.5 billion after-tax impairment on the value of its WA nickel interests, which represent the Nickel West operation and the West Musgrave nickel project it picked up in the acquisition of OZ Minerals.

Jessica Farrell of BHP during the first nickel emergency meeting with federal Resources Minister Madeleine King in Perth last month. Trevor Collensnone

Its next move could be to mothball the assets, after conceding one option is “the potential to place Nickel West into a period of care and maintenance”. It may also slow development of the West Musgrave project.

Separately, it will recognise a charge of $US3.2 billion after tax on the deadly Samarco disaster in Brazil.

The impairment makes the nickel business worthless from an accounting perspective, with the carrying value of its assets falling to negative $US300 million, including closure and rehabilitation provisions of about $US900 million.

It had been stepping up warnings on the future of its nickel division and the threat to about 3000 jobs in the countdown to the release of its interim earnings, due on February 20.

Indonesia, LME blamed

In a statement to the market, BHP said the nickel industry was facing challenges after a sharp fall in prices, and pointed the finger at the London Metals Exchange and Indonesia’s nickel producers.

“During calendar 2023, London Metals Exchange benchmark nickel prices fell considerably as both the supply of nickel from Indonesia significantly increased and the LME began accepting Indonesian-origin nickel products as part of its efforts to respond to evolving industry dynamics,” BHP said.

“These unfavourable operating conditions are expected to endure for a considerable time. Due to the deterioration in the short-term and medium-term outlook for nickel, BHP has lowered its nickel price assumptions.”

West Musgrave was supposed to cost $1.7 billion to build, but BHP said inflation was a factor. Combined with the nickel price slump, that could affect construction of West Musgrave.

“BHP is currently assessing phasing and capital spend for the development of the West Musgrave project as part of this review.”

The Federal and WA governments hosted a crisis meeting for the collapsing nickel industry in Perth on January 24, but no relief measures have been announced.

The billions of spending planned at West Musgrave, which is 21 per cent complete, puts another project at risk: suspending nickel investment means BHP may not push ahead with redevelopment of the Kalgoorlie nickel smelter, which was supposed to cost more than $500 million.

Federal Court appeal

At least 19 people were killed in the 2015 Samarco dam tragedy. BHP said the charge partly related to a January court verdict in Brazil, in which the Federal Court of Brazil found the Samarco owners – BHP and Brazilian miner Vale – were jointly liable for $US9.75 million of moral damages.

The moral damages claim is separate and additional to the “framework agreement” that BHP and Vale struck with Brazilian governments in March 2016, which was supposed to result in the miners paying about $US32 billion to rebuild communities and compensate those affected by the disaster.

Before Thursday’s market disclosure, BHP had not even confirmed the existence of the Brazilian Federal Court ruling to the ASX, saying only that it was aware of media speculation about such a hearing, had not been served with any such verdict.

BHP said on Thursday that it filed a clarification motion against the Federal Court decision on February 1. It plans to appeal against the moral damages finding and expects the process to take between two and five years.