BHP suspending Western Australia nickel operations

11th Jul 2024 11:29

(Sharecast News) - BHP announced the suspension of its Nickel West operations and the West Musgrave project in Western Australia on Thursday, starting from October.

The Australian mining giant said the decision was in response to an oversupply in the global nickel market and a sharp decline in forward consensus nickel prices, driven by the growth of alternative low-cost nickel supply.

It said it planned to review the decision by February 2027.

Despite significant capital investments of around AUD 4.4bn (£2.31bn) since the 2020 financial year, aimed at sustaining Western Australia Nickel and reorienting its production towards the battery and electric vehicle market, the firm said the operations had recorded negative cash flow each year.

BHP's investments included establishing Australia's first nickel sulphate plant, building two new mines, and developing two solar farms and battery storage.

However, lower global nickel prices had resulted in an expected underlying EBITDA loss of about $300m for the financial year ended 30 June.

During the suspension, BHP said it would continue to support its workforce and local communities.

The company said it would invest AUD 450m annually, following a transition period starting in July, to support a potential restart of Western Australia Nickel.

Operations would cease in October, with handover activities completed by December.

During the period, BHP would halt mining and processing operations at the Kwinana nickel refinery, Kalgoorlie nickel smelter, and Mt Keith and Leinster operations, as well as the development of the West Musgrave project.

The company said it would implement a care and maintenance programme to ensure the ongoing safety and integrity of its mines and related infrastructure, and continue investing in exploration to extend the resource life of Western Australia Nickel.

BHP said it would offer frontline employees other roles within BHP or the choice of redundancy.

Additionally, BHP would establish an AUD 20m community fund to support local communities during the temporary suspension.

In February, BHP announced a review of Western Australia Nickel and a non-cash impairment charge of $3.5bn pre-tax against its carrying value.

Following the decision to temporarily suspend operations, BHP said it expected to recognize a further non-cash impairment charge of $0.3bn pre-tax as an exceptional item in its 2024 financial statements.

Any redundancy payments and other contractual costs triggered by the suspension would be recognised in its 2025 interim financial statements.

"We understand this is a challenging period for the Western Australia Nickel team and surrounding communities," said BHP's Australia president Geraldine Slattery.

"Every frontline employee will be offered another role within BHP, and best endeavours will also be made to identify redeployment opportunities for other employees engaged in the day-to-day operations of Western Australia Nickel.

"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 AUD 20m community fund."

Slattery said that since BHP announced a review of Western Australia Nickel in February, it had explored options to stem losses in the short-term and identify a viable path forward for the business.

"Like others in the Australian nickel sector, we have not been able to overcome the substantial economic challenges driven by a global oversupply of nickel.

"We have made the difficult but necessary decision to temporarily suspend the Nickel West operation and West Musgrave project.

"We will continue to invest approximately AUD 450m per annum 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 AUD 12bn 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."

At 1214 BST, shares in BHP Group were down 0.35% in London at 2,267p.

Reporting by Josh White for Sharecast.com.