What BHP’s cessation of nickel production in WA means for the industry

In view of the global nickel crisis, BHP has decided to temporarily suspend its operations at Nickel West and the West Musgrave project in Western Australia.

What does the suspension mean for the Australian nickel industry? Australian mining examined.

Operations will cease in October and handover activities for the temporary suspension will be completed by December.

The transition period has commenced and will result in BHP ceasing mining and processing operations at the Kwinana nickel refinery, the Kalgoorlie nickel smelter, the Mount Keith and Leinster operations, and also ceasing development of the West Musgrave project.

The Company will also implement a care and maintenance program to ensure the ongoing safety and integrity of its mines and associated infrastructure. BHP will also continue to invest in exploration to extend the resource life of Western Australia Nickel to maintain optionality.

“We understand this is a challenging time for the Western Australia Nickel team and the surrounding communities,” said BHP Australia President Geraldine Slattery.

“Since BHP announced a review of Western Australia Nickel in February, we have been exploring options to contain losses in the short term and find a viable path for the future of the company.

“Like others in the Australian nickel industry, we have been unable to overcome the significant economic challenges caused by a global oversupply of nickel. We have made the difficult but necessary decision to temporarily suspend operations at Nickel West and the West Musgrave project.”

The result is that Western Australian Nickel employees are being relocated or offered redundancy.

BHP has committed to supporting its workforce and local communities during the suspension. The company will establish a $20 million community fund to support local communities and will invest around $450 million annually after the transition period is completed to support a potential restart of Western Australia Nickel.

“Western Australia remains a key investment destination for BHP globally. Investment in the state is expected to exceed $12 billion over the next five years and we will continue to work with all of our Western Australian partners to drive the state’s economic prosperity,” Slattery said.

BHP intends to review the decision to temporarily suspend its nickel operations in Western Australia until February 2027.

Government reaction

In January, Federal Resources Minister Madeleine King and Western Australia Mining Minister David Michael met with nickel producers to discuss ways they could support the industry during the downturn.

Following the panel discussion, King and Michael said they would work together to accelerate discussions on investment incentives while urgently advancing discussions with state governments on shared user infrastructure for critical minerals.

A month later, King added Nickel to the Critical Minerals List, which includes minerals that are essential to low-emission technologies, the economy and national security and whose supply chains are vulnerable to disruption.

Now King described BHP’s decision as an expression of the “extreme volatility of the global nickel markets”.

“Our immediate concern is for the workers and communities affected,” King said.

“We welcome BHP’s commitment to redeploy workers who wish to continue working for the company and we welcome BHP’s commitment to continue investing in Nickel West during the temporary suspension to enable a restart when global nickel markets stabilise and improve.

“We also welcome BHP’s commitment to continue supporting local supply chains and paying royalties to First Nations communities during the temporary suspension. We also want to work with the Government of Western Australia to continue to support investment in skills and resources on future projects.”

The Premier of Western Australia, Roger Cook, made similar comments.

“This is a disappointing decision and our thoughts are with the thousands of workers and their families affected by the suspension,” Cook said.

“My government will do whatever is necessary to support these workers and our regional communities during this difficult time.”

The Western Australian government had previously announced a 50 percent royalty relief program that would kick in if the average price of nickel concentrate fell below US$20,000 per tonne. The refund must be repaid by companies in equal quarterly instalments over the following 24 months.

BHP will now provide funding for the Western Australian Government’s proposed $200 million shared advanced critical minerals processing facility, which is co-funded by the Commonwealth.

The Company will also work with its project partners to advance the construction of a power generation furnace at Kwinana and, in collaboration with Curtin University, provide its refinery resources and expertise for critical minerals research. It will also donate $5 million to support training under the Western Australian Government’s Group Training Organisations Wage Subsidy Program.

Industry reaction

Following the nickel roundtable discussion in late January, King and Michael committed to further discussions with the Chamber of Minerals and Energy WA on the future of the nickel industry and the role of royalties.

CME CEO Rebecca Tomkinson described BHP’s nickel suspension as “responsible.”

“These are challenging times for our critical minerals sector and we are committed to working closely with state and federal governments to ensure our policy frameworks remain competitive and the viability of the industry is maintained over all time horizons – short, medium and long term,” Tomkinson said.

“BHP is a significant employer in Western Australia with strong ties to the local communities of Leinster, Leonora, Kalgoorlie and Kambalda. I know this decision has been made after months of operational review and careful consideration of options. It has not been taken lightly.

“We are fortunate at the moment that the minerals sector in Western Australia remains vibrant, so workers affected by this decision have a good chance of finding work elsewhere in the minerals sector.”

Tomkinson said the industry must not become complacent in difficult times.

“We must continue to keep mining strong in Western Australia by creating a robust and efficient regulatory framework that supports future development,” she said.

Possible solutions

BHP has welcomed the proposed Production Tax Credit (PTC) for critical minerals, which will allow eligible companies to claim 10 per cent of expenditure on processing and refining each of Australia’s 31 critical minerals.

The PTC was based on a similar US government program that was Inflation Reduction Actwhich is considered the largest climate investment in US history.

The Association of Mining and Exploration Companies (AMEC) commissioned Mandala Partners in 2023 to economically model the launch of an IRA-style PTC in Australia.

In February, AMEC led a delegation of mining and energy companies, including IGO, Wyloo, Australian Vanadium, QEM, Pilbara Minerals and Tesla, to advance discussions with the Federal Government on PTC. Consultations on a potential PTC began in June.

In addition to a PTC, Wyloo CEO Luca Giacovazzi has advocated a “green nickel price premium” that would differentiate between nickel produced in Australia, which meets strict environmental, social and governance (ESG) standards, and lower-quality nickel from countries such as Indonesia.

Nickel price reform is also supported by Minister King and Andrew Forrest.

In January, Henry predicted that the downturn in nickel would continue until the end of the decade, adding that nickel was BHP’s smallest business.

“Yes, it was one of the three areas of production growth that we called for for BHP… but yet it was always the smallest… business in BHP’s portfolio and in terms of the company’s growth prospects,” Henry said.

“But 17 million Australians depend on BHP’s success and performance, either directly as shareholders or indirectly through superannuation funds.

“It creates a real sense of responsibility on our part to make sure we make the right decision, taking into account a range of considerations from both shareholders and other stakeholders. And we are in that process right now.”

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