Analysts neutral on BHP after ‘unsurprising’ suspension of nickel operations — Capital Brief

The news: Analysts were unimpressed by BHP after the mining company announced it would temporarily halt its nickel mining operations in Western Australia.

The numbers: Morgan Stanley maintained its Equal-Weight rating on BHP, with a price target of $46.65. Macquarie maintained its Neutral rating on the stock and kept its price target of $43.

On Thursday, BHP said it expects an underlying EBITDA loss of US$300 million (US$450 million) and a non-cash impairment charge of US$0.3 billion in fiscal 2024 related to its WA Nickel business.

BHP’s operations at Nickel West and the West Musgrave project will cease from October 2024 and BHP will review the cessation by February 2027.

BHP shares fell 0.94% to $43.15 in early trading on the ASX, giving them a 2.16% decline over the past 12 months.

The context: Analysts at Morgan Stanley said they viewed BHP’s announcement as “unsurprising” given the review process the company had already initiated in relation to its nickel business.

They considered the decision to be “prudent” as they had forecast losses at BHP’s Nickel West operation in the coming years and the operation was currently generating negative discounted cash flow.

Morgan Stanley’s commodity strategists also saw risks in the future from a loosening of the market balance and predicted that a market surplus would persist until the end of the decade.

Analysts at Macquarie said BHP had “no choice but to cease operations” given the capital burden and “unattractive returns.” They noted that the decision allows the company to “leave the resources in the ground” where it can benefit from a price recovery or through divestment.

What they said: BHP’s WA Nickel “has impacted BHP’s portfolio and focus as it is a non-core asset in a competitive resources sector,” Macquarie analysts said.

“A concentrated focus on growth in copper is now paramount to reshape the portfolio ahead of the structural decline in iron ore.”

The sources:
Morgan Stanley Research,
Macquarie Research