BHP to suspend WA nickel assets amid weak commodity prices and global oversupply
Mining giant BHP Group (ASX: BHP) will temporarily suspend its nickel operations in Western Australia in October following depressed commodity prices and an oversupply in the global nickel market.
The suspension will impact mining and processing operations at the Kwinana nickel refinery, Kalgoorlie nickel smelter, and Mt Keith and Leinster operations (collectively known as Nickel West) along with development of the West Musgrave project.
Together, Nickel West and West Musgrave are referred to as Western Australia Nickel.
Maintenance program
A care and maintenance program of work will be implemented during the suspension period to ensure the ongoing safety and integrity of the mines and related infrastructure.
BHP will commence a transition period this month, with the temporary suspension taking effect in October and handover activities for the suspension completed by year-end.
The company plans to review the suspension in February 2027.
Nickel prices
Global nickel prices averaged more than US$25,000 per tonne in the 18 months from the start of 2022 and have since dropped to around US$16,725/t, placing substantial pressure on the Nickel West operations.
Forward consensus nickel prices over the next five years have also fallen sharply, reflecting strong growth of alternative low-cost supply.
BHP said it would invest about US$300 million per annum following completion of the transition period to extend the resource life of Nickel West and support a potential re-start of Western Australia Nickel.
Operational review
The temporary suspension follows a review in February of BHP’s WA nickel operations in light of weakened metal prices.
The company said at the time that it expected to report a US$200m loss from the Nickel West operations for the first half and estimated it would cost about US$900m for closure and rehabilitation.
It said it was focused on preserving cash during the market downturn and the option to place Nickel West into a period of care and maintenance was under consideration.
BHP acquired the Nickel West business as part of a A$9.2 billion takeover of WMC Resources in 2005.
‘Necessary move’
BHP Australia president Geraldine Slattery said the suspension had been a difficult but necessary move.
“As part of our review in February, we have explored options to stem losses in the short term and identify a viable path forward for the business,” she said.
“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, so we have made the difficult but necessary decision to temporarily suspend Nickel West and West Musgrave.”
Employee impact
BHP WA nickel asset president Jessica Farrell said 1,600 employees across the operations would be directly impacted and either redeployed within the business or offered redundancies.
“Anyone in our frontline who wants a job with BHP has a job with BHP,” she said.
“We are continuing to work with all of our other employees and support businesses on options where we can for redeployment.”
Ms Farrell said the company would establish a $20m fund to support local communities during the suspension period.
Business investment
Since 2020, BHP has invested approximately US$3b to sustain Western Australia Nickel as an ongoing business and reorient its production to the battery and electric vehicle market.
This has included establishing Australia’s first nickel sulphate plant to enhance downstream infrastructure, building two new mines and investing in the development of two solar farms and battery storage.
Western Australia Nickel has recorded negative cash flow every year during this period.
Lower global nickel prices have contributed to the operation having a forecast underlying EBITDA loss of approximately US$300m for the financial year to 30 June 2024.