BHP to shut Aussie nickel assets as impairments rise to $3.8bn

BHP is to suspend its Australian nickel production until 2027 at least, saying it was unable to “ovecome the substantial economic challenges” of global oversupply of the metal.

Major supplies of low-grade nickel from Indonesia has seen the nickel price fall 44% since the beginning of 2023. Nickel moved from a supply deficit of 161,000 tons in 2021 to a surplus of 244,000 tons last year. The surplus is projected to continue until at least 2027, according to Bloomberg News which cited Macquarie Bank data.

Glencore announced in February it would shutter its 49%-owned Koniambo mine in which it had sunk more than $4bn into Koniambo since 2013 while First Quantum Minerals said it would halt mining at its nickel and cobalt operation in Western Australia and cut a third of the workforce in response to weaker metal prices and higher costs.

BHP’s announcement is not a surprise. It announced in February it was trying to stem losses at the Western Australian operations. “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,” said Geraldine Slattery, president of BHP Australia today.

BHP’s Western Australia Nickel are forecast to report an underlying Ebitda loss of about $300m in the year to end-June, BHP said. The group would incur a $300m write-down on the assets taking impairments to $3.8bn following a charge earlier this year.

BHP said it would invest $300m a year in the operations – which include mining and processing at the Kwinana nickel refinery, Kalgoorlie nickel smelter and Mt Keith and Leinster operation – once a transition period had been completed, end-December.

“While all commodities go through these phases, nickel suffers somewhat more than other metals because when prices are good, you get a lot of recycling,” S&P Global Metals cited Peter Arden, MD of mining research consultancy Groundwork in January. “Then the recycling falls off as prices decline,” he said.

“The pain nickel producers experience is often quite extreme because the flat and low points can be quite prolonged, even for a few years.”

Indonesia now produces more than half of the world’s supply of the metal used in stainless steel and electric vehicle batteries, according to a Bloomberg News article in March. But a rally in the metal’s price was on the horizon, it added.

The supply of ore from the country is currently being constrained by slow government approvals of work plans, which are needed by local miners to operate, said the newswire. Stockpiles held by Indonesian smelters — which usually cover about three months of production — have moderated the impact on global prices so far. But once they’re exhausted, the situation could turn very quickly.