BHP to take $675m hit

Reuters | Fri, 03 Jul 2009 09:32
[miningmx.com] -- BHP Billiton retreated further from high-cost nickel operations on Friday, announcing the sale of its Yabulu nickel refinery in Australia to a local mining magnate.

The future of Yabulu, in the northeast Queensland state, had been in doubt since January when BHP Billiton shut its Ravensthorpe nickel mine in Western Australia that supplied the refinery with concentrate to process into nickel and cobalt.

Neither BHP Billiton nor the buyer, billionaire Clive Palmer, disclosed the sale price but it will result in writedowns totalling $675m for BHP Billiton.

"It's a good buy and the replacement value would be over A$2bn ($1.6bn)," Palmer told Reuters, adding there was "plenty of opportunity to expand when metals markets improve."

Palmer also said unlike some other nickel-making operations in Australia, Yabulu was "currently profitable" and no longer under threat of closing.

BHP in May shuttered a second nickel mine in Australia, called Rocky's Reward, because weak metals prices meant it cost more to produce nickel than it could be sold for.

Minmetals' Avebury nickel mine has also been shut.

Ravensthorpe's closure saw Yabulu's production cut back to 35,000 tonnes a year from 75,000 tonnes, making the 37-year-old refinery too small for a company the size of BHP Billiton, the world's largest miner.

Ravensthorpe won't be restarted to supply ore to the Yabulu nickel refinery under the new ownership, Palmer said.

"Yabulu has a 30,000-tonnes-per-year nickel making capacity for ore supplied from the Pacific region and that's where we are leaving it for now," Palmer told Reuters.

BHP spent $2.2bn developing Ravensthorpe but the mine operated for little more than a year.

Nickel sells for around $16,450 a tonne, down from record highs above $51,000 a tonne two years ago.

"I think it will go up to $8.50 or $9.00 a pound ($19,125-$20,250 per tonne) in the next year and a half," Palmer said.

Palmer, who made his fortune in the 1980s out of a property boom on Queensland's Gold Coast, plans to keep running Yabulu on nickel ores from mines in New Caledonia, Indonesia and the Philippines.

BHP said it would write down the value of Yabulu assets by $500 million and write off a further $175m in unrecoverable tax benefits. The sale is expected to be finalised by July 31.

Palmer, who also owns iron ore deposits in Western Australia and coal interests in Queensland, is a director of Gladstone Pacific Nickel Ltd , a listed company that had planned to build a $3.65bn nickel and cobalt refinery in the Queensland industrial port city of Gladstone.

Gladstone Pacific announced on June 30 that a joint development of the Gladstone refinery with China Metallurgical Construction Corp had lapsed and the project's development would be put on hold.