In $8.6b blow, BHP’s profit is decimated by nickel woes, Samarco

BHP boss Mike Henry says production tax credits being considered by the Albanese government may not be enough to salvage Australia’s crashing nickel industry, which could face a global oversupply of the metal until the end of the decade.

The mining giant has taken an $8.6 billion hit to its half-year profit after a $US2.5 billion ($3.8 billion) writedown of its loss-making Western Australian nickel operations and a $US3.2 billion provision to deal with the Samarco dam disaster in Brazil.

BHP says its Western Australia iron ore operations remain the lowest cost major producer globally.Credit: Ian Waldie/Bloomberg

The Nickel West and West Musgrave writedown – the result of a global crash in nickel prices – and the charge against Samarco undermined what was otherwise a solid operational performance amid overall healthy commodity prices.

The company increased revenue by $US1.5 billion, largely off the back of higher iron ore and copper prices as well as its Oz Minerals acquisition of the Prominent Hill and Carrapateena mines. The revenue boost was partly offset by New South Wales Energy Coal where, despite a 43 per cent jump in sales volumes, realised prices fell by 65 per cent.

BHP’s underlying profit was $US6.6 billion, but the $US5.6 billion nickel write-off and Samarco charge cut that result by 86 per cent to $US972 million, its lowest in eight years. Revenue was up 6 per cent to $US27.23 billion, and the miner said it will pay an interim dividend of $1.10 per share – the lowest since 2020.

As a result of the collapse in nickel prices, BHP is reviewing its Australian nickel mines, smelter and refinery and may shut them for the foreseeable future, putting more than 3000 jobs at risk, although it has yet to decide a course of action. “It’s really too early to call yet,” Henry said about the number of employees likely to be affected.

“We have a smelter and refinery. It’s a much more complex decision to look at how you move those into a period of care and maintenance and preserve the realistic ability to move them out of care and maintenance in due course,” he said.

The review follows a surge in nickel supply out of Indonesia last year that slashed global prices and shuttered Australia’s nickel sector seemingly overnight, prompting the closure of a handful of mines and crisis talks between the Albanese government and industry about production tax credits to support the sector.

Prime Minister Anthony Albanese, speaking to reporters in Perth, said on Tuesday the government was considering appropriate support measures. “One option that has been put forward by some is that issue of production tax credits … we’ll examine it,” Albanese said.

However, Henry said policies like a production tax credit “may not be enough given just how significant the challenges in the nickel market are today”.

“The single biggest factor is this surge in supply that’s come out of Indonesia, which has taken everybody by surprise. We expect that’s going to persist for a period of time, possibly through to the end of this decade.”

BHP chief executive Mike Henry.Credit: Wayne Taylor

Henry challenged the government to alter course on industrial relations and fix wage inflation rather than offer sector-specific subsidies.

“Some of the policy changes over the past 12 months have been pulling us in the other direction and are likely to harm competitiveness long term,” he said.

Amid volatility in global commodity prices, demand for BHP’s ores from the developed world was softer than expected. However, demand from China is “healthy despite weakness in housing and India remains a bright spot”, the company said.

Henry said China’s steel output could exceed a billion tonnes for a sixth year straight. “That’s pretty positive, and it’s because certain sectors of the Chinese economy that are performing quite well.”

The miner pointed to a solid recovery in China’s infrastructure, lower carbon emissions technology, manufacturing, automotive, shipbuilding and consumer durables sectors, but said there is still weakness in real estate sector and non-steel exports.

Analysts said there were no surprises in the half-year result. Most key metrics were in line with market expectations, and there was no change to the company’s profit forecasts, RBC Capital Markets said. The company’s share price remained flat around $45.98.

Henry said the company aims to remain the lowest cost iron ore producer globally. “The safest thing for us to do is ensure that we are at the very low end of the cost curve with the most cost competitive iron ore business in the world.”

The miner set new production records for copper output at its mines in South Australia and Chile with production up 7 per cent to 894 kilo tonnes. The average realised wet metric tonne price of iron ore was up 21 per cent at $US103.70 over the half year.

BHP said the long term megatrends playing out around the world continue to underline its confidence in future demand for steel, non-ferrous metals and fertilisers.

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