BHP takes Nickel West off market

BHP chief executive Andrew Mackenzie has said the company’s nickel division is no longer for sale.

BHP chief executive Andrew Mackenzie has pulled the sale of Nickel West. Picture: Colin Murty

BHP boss Andrew Mackenzie says the mining giant’s nickel division is no longer for sale, saying it now believed the once-troubled division could return as a tier-one flagship asset for the company.

BHP put Nickel West on the block in 2014 as the business bled cash amid the commodity price downturn.

But it pulled the sale after failing to find a buyer prepared to meet its price, cancelled development of its new mining prospect and warned staff that the division could close by 2020.

The massive rehabilitation costs associated with the West Australian operations, first opened by Western Mining Corporation in the 1960s, prevented its divestment into South32 when BHP spun off the rest of its second-tier assets.

Since then Nickel West boss Eddy Haegel has led an extraordinary turnaround of the once-troubled division, slashing more than $500 million from its annual costs and extending its potential life until 2040.

Nickel last traded at $US11,759 a tonne

Mr Mackenzie has since softened his rhetoric on Nickel West being a “non-core” asset for BHP, but went a step further during a presentation to the Bank of America Merril Lynch conference in Barcelona last night, when he gave a firm commitment to retaining Nickel West and said that it could one day return as a flagship part of BHP’s global business. “In nickel, a commodity we will now retain in our portfolio, Nickel West offers numerous development options and potential enhancements to its resource position through exploration and processing innovation,” he said.

Mr Mackenzie said risks remained for Nickel West, partly due to its historic reliance on Western Australia’s mid-tier nickel mines for feedstock for its smelter and refinery, but put the division in the list of BHP assets that “have the potential to become the tier-one assets of the future”.

“The scale of resource, cost curve position, and reliance on third-party ore sources explains its higher-risk position,” Mr Mackenzie said.

“While its higher return potential as a future growth option is linked to the expected growth in battery markets and the relative scarcity of quality nickel sulphide supply.”

It has been more than a decade since BHP regarded Nickel West as a tier-one asset when, at the top of the commodity cycle, it was a mighty contributor to the company’s profits.

In 2007, BHP’s stainless steel materials division, including Nickel West, out-earned its iron ore operations by $US1 billion ($1bn), delivering stunning earnings of $US3.7bn from an average $US17.20 a pound nickel price. That year it was out-earned only by BHP’s copper operations.

But base metals prices crashed as the global financial crisis hit, and within a few years Nickel West began posting some significant losses.

Since Mr Haegel took over the division, BHP re-positioned ­Nickel West as a key supplier of nickel sulfate to the battery market, approving capital spending on a nickel sulfate plant at its WA refinery to produce material for high-quality batteries used in electric vehicles.

That plant is aimed at producing 100,000 tonnes of battery-grade nickel sulfate, and BHP is already eyeing an expansion of the plant to double its production, as well as the option of producing another battery material, cobalt sulfate.

In the first half of the year Nickel West posted underlying earnings, before interest and tax, of $US42m.

BHP spent $US128m on upgrading its mines and plant in the first half of the year.