BHP temporarily halts nickel assets in WA due to weak commodity prices and global oversupply

Mining giant BHP Group (ASX: BHP) will temporarily suspend its nickel operations in Western Australia in October due to low commodity prices and 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), as well as the development of the West Musgrave project.

Nickel West and West Musgrave are collectively known as Western Australia Nickel.

Maintenance program

During the closure period, a care and maintenance program will be implemented to ensure the continued safety and integrity of the mines and associated infrastructure.

BHP will begin a transition period this month, with the temporary suspension taking effect in October and suspension handover activities completed by year-end.

The company plans to review the suspension in February 2027.

Nickel prices

In the 18 months since the beginning of 2022, global nickel prices have averaged more than US$25,000 per tonne and have since fallen to around US$16,725 per tonne, placing significant pressure on Nickel West’s operations.

Nickel prices expected over the next five years have also fallen sharply, reflecting strong growth in alternative, low-cost supplies.

BHP said it would invest approximately $300 million annually following completion of the transition period to extend the resource life of Nickel West and support a potential restart of Western Australia Nickel.

Operational audit

The temporary suspension followed a review of BHP’s WA nickel operations in February in light of falling metal prices.

The company said at the time that it expected a loss of $200 million from the Nickel West business in the first half of the year and estimated closure and remediation costs at around $900 million.

The company stated that its focus during the market downturn is on preserving cash and that it is considering the option of placing Nickel West into a care and preservation phase.

BHP acquired the Nickel West business as part of its acquisition of WMC Resources in 2005 for A$9.2 billion.

“Necessary step”

BHP Australia president Geraldine Slattery said the suspension was a difficult but necessary step.

“As part of our review in February, we examined options to contain losses in the short term and find a viable path for the future of the company,” she said.

“Like other companies in the Australian nickel sector, we have been unable to overcome the significant economic challenges created by a global oversupply of nickel and have therefore taken the difficult but necessary decision to temporarily cease production at Nickel West and West Musgrave.”

Impact on employees

Jessica Farrell, president of BHP WA’s nickel asset division, said 1,600 employees across the operation would be directly affected and would either be transferred within the company or offered redundancy.

“Everyone on our front line who wants a job at BHP has a job at BHP,” she said.

“We continue to work with all of our other employees and support companies in finding redeployment opportunities.”

Ms Farrell said the company would set up a $20 million fund to support local communities during the suspension period.

Business investments

Since 2020, BHP has invested approximately $3 billion to maintain Western Australia Nickel as a going concern and refocus its production on the battery and electric vehicle market.

These included the construction of Australia’s first nickel sulphate plant, improving downstream infrastructure, building two new mines and investing in the development of two solar farms and battery storage facilities.

Western Australia Nickel recorded negative cash flow every year during this period.

Lower global nickel prices have contributed to a forecast adjusted EBITDA loss of approximately $300 million for the fiscal year ending June 30, 2024.