BHP stops nickel mining in WA due to global oversupply

BHP (ASX: BHP) has bitten the bullet and will cease nickel mining in WA as it expects to incur a loss in the nickel business for the entire year.

The decision, announced on Thursday evening, puts the future of thousands of jobs in WA in question.

BHP shares closed at $43.56 on Thursday, up 0.9%. Shares have fallen nearly 14% since the beginning of the year.

BHP blamed a global oversupply of nickel from China-backed companies in Indonesia and, to a lesser extent, the Philippines. These companies produce huge quantities of low-grade nickel mats that are exported to China, squeezing purer forms of the metal out of the market.

In the statement, BHP said:

• Cessation of mining and processing operations at the Kwinana Nickel Refinery, Kalgoorlie Nickel Smelter and Mt Keith and Leinster operations and development of the West Musgrave Project.
• Implement a care and maintenance program to ensure the ongoing safety and integrity of your mines and associated infrastructure.
• Continue to invest in exploration to extend the life of nickel resources in Western Australia and maintain optionality.
• Offer Western Australia Nickel’s front-line employees an alternative role within BHP or the option of redundancy and establish a AU$20 million community fund to support local communities during the temporary suspension.

Nickel West employs more than 3,000 people.

“During the temporary suspension, BHP will continue to support its workforce and local communities,” BHP said.

BHP said it would invest approximately US$300 million (AU$450 million) annually to support a potential restart of Western Australia Nickel following the completion of a transition period.

The transition period will begin this month. Operations will cease in October 2024 and the handover activities for the temporary suspension will be completed by December 2024.

Since 2019–20, BHP has invested approximately US$3 billion (AU$4.4 billion) to maintain its operations at Western Australia Nickel and refocus its production on the battery and electric vehicle market.

“This includes the construction of Australia’s first nickel sulphate plant to improve downstream infrastructure, the construction of two new mines and investments in the development of two solar farms and battery storage. Western Australia Nickel recorded negative cash flow every year during this period.

“Despite significant capital investment, lower global nickel prices have contributed to Western Australia Nickel expecting an underlying EBITDA loss of approximately $300 million for the financial year ending 30 June 2024.”

In February 2024, BHP announced plans to review Western Australia Nickel and record a pre-tax non-cash impairment charge of approximately US$3.5 billion (AUD$5.1 billion) to the carrying value of Western Australia Nickel.

As a result of the decision to temporarily cease operations, BHP expects to record a further non-cash impairment charge of US$300 million (A$450 million) before tax as an exceptional item in the Group’s 2023–24 financial statements.

BHP’s decision has been expected for most of this year after several smaller nickel projects were suspended. Panoramic Resources closed its nickel-cobalt-copper mine in Savannah, in the far north of Western Australia, earlier this year.

IGO has written down the value of its nickel mines in WA and ceased production at its Cosmos mine, Wyloo Metals (owned by Andrew Forrest) has closed its nickel mines in WA and Canada’s First Quantum has closed its Ravensthorpe mine in south-west WA.