BHP Group (NYSE: BHP) has announced a significant operational change for its Western Australia Nickel division, which includes the Nickel West operations and the West Musgrave project. Starting October 2024, all mining and processing activities in this division will be temporarily suspended, with a review scheduled for February 2027.
This decision comes as a response to an oversupply in the global nickel market and declining forward consensus nickel prices for the next half-decade.
The suspension affects several key facilities and projects within BHP’s Western Australia Nickel division. The operations at the Kwinana nickel refinery, the Kalgoorlie nickel smelter, the Mt Keith and Leinster mines, and the development of the West Musgrave project will all be put on hold. Despite the halt in operations, BHP is committed to maintaining the safety and integrity of these facilities through a comprehensive care and maintenance program.
BHP has pledged to support its workforce and the local communities impacted by the suspension. The company will invest approximately US$300 million (AUS$450 million) annually during the transition period, which begins in July 2024. This investment is aimed at supporting a potential restart of operations. Additionally, BHP will establish a AUS$20 million Community Fund to aid local communities during the suspension period.
Employees of Western Australia Nickel will be offered alternative roles within BHP or the choice of a redundancy package. This move aims to mitigate the impact on workers and ensure a smoother transition during the suspension.
Since the 2020 fiscal year, BHP has invested around US$3 billion (AUS$4.4 billion) into sustaining Western Australia Nickel operations and adapting its production to serve the battery and electric vehicle market. These investments include the establishment of Australia’s first nickel sulphate plant, the development of two new mines, and the construction of solar farms and battery storage facilities.
Despite these significant investments, the Western Australia Nickel division has consistently reported negative cash flow, with an expected underlying EBITDA loss of approximately US$300 million for the financial year ending June 30, 2024.
The primary driver behind the suspension is the oversupply in the global nickel market. According to BHP, “Forward consensus nickel prices over the next half of the decade have fallen sharply, reflecting strong growth of alternative low-cost nickel supply.” This market condition has made it challenging for Western Australia Nickel to remain financially viable despite substantial capital investments and strategic shifts.
The company plans to continue investing in exploration to extend the resource life of these assets and preserve operational flexibility. This approach ensures that BHP is prepared to restart operations if market conditions improve by the review date in 2027.
In February 2024, BHP had already announced a review of the Western Australia Nickel operations, along with a non-cash impairment charge of approximately US$3.5 billion (AUS$5.1 billion) against the carrying value of these assets. This prior announcement set the stage for the recent decision to suspend operations temporarily.
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