BHP temporarily suspends nickel production citing oversupply
BHP is mothballing operations at its Nickel West and West Musgrave sites, citing oversupply in the global nickel market.
BHP has put 3000 jobs on the block at its Nickel West operations, confirming on Thursday it will mothball the troubled division and try to wait out the nickel price storm.
The mining giant said it will begin shuttering its mines and processing facilities – including the Kalgoorlie smelter, a refinery in Perth’s southern suburbs, and its major mines at Leinster and Mount Keith – from October.
The decision brings to a bitter end BHP’s 2019 decision to reverse track on its WA nickel operations. Former BHP boss Andrew Mackenzie announced five years ago BHP was no longer looking for a buyer for its operations, and believed nickel could one day return as a flagship commodity for the company.
Thursday’s retreat from nickel puts about 3000 jobs across the division on the line, although BHP has said Nickel West’s 1600-strong operational workforce will be offered jobs elsewhere within the company, if they want them, and the company will make its best efforts to find new roles for the 800 or so support staff within the division.
The remaining workforce is made up of contractors, and a construction workforce at the West Musgrave project in remote WA, where work has now been suspended.
BHP said on Thursday the suspension of operations will last until at least February 2027, when the decision will be reviewed, and it will spend about $450m a year to keep the mothballed operations in a high state of readiness in case the nickel market turns.
The decision represents a major blow for the regional WA city of Kalgoorlie, where BHP’s smelter remains a major employer, and adds to the exodus of heavy industry from the state after Alcoa’s previous decision to close down its alumina refinery in Kwinana.
BHP President Australia Geraldine Slattery said in a statement the company had examined every possible option to keep the business open, after announcing a review of Nickel West’s future in February.
She said the division expected to book a loss of $450m for the full financial year, and the short-term outlook for the nickel price could not sustain its continued operation.
“Like others in the Australian nickel sector, we have not been able to overcome the substantial economic challenges driven by a global oversupply of nickel,” she said.
“We understand this is a challenging period for the Western Australia Nickel team and surrounding communities. Every frontline employee will be offered another role within BHP, and best endeavours will also be made to identify redeployment opportunities for other employees engaged in the day-to-day operations of Western Australia Nickel.”
BHP will need to spend at least eight months winding down its mines and processing facilities after beginning that process in October, and will likely still need a significant WA workforce to maintain their condition ahead of any decision to restart operations.
Ms Slattery said the company was confident that it had enough demand for workers in its other Australian operations – particularly in Pilbara iron ore and South Australian copper – to support the redeployment of any WA nickel operational staff that wanted to stay with the company.
“We looked at the numbers and looked at our vacancies – and it is well recognised that the labour market is very tight in Western Australia and in Australia more broadly,” she said.
“We value our people, and we value their capabilities and training. We’ve looked at what it will take across Western Australian iron ore, or potentially South Australia copper and other assets and so that’s essentially how we’ve come up with the numbers – based on our evaluation of our workforce.”
Nickel was trading at about $US16,800 a tonne on the London Metal Exchange this week, more than 40 per cent higher than its level in 2019 when BHP returned the industrial metal to its fold.
The price of nickel has tumbled from levels above $US30,000 a tonne in early 2023 in the face of a flood of cheap new supply from Indonesia. But the price has not fallen below $US15,000 a tonne for any sustained period since 2021.
Ms Slattery said the nickel price alone was not behind BHP’s decision, noting significant cost inflation in the WA mining sector over the last five years.
But she said BHP was not currently considering any sale of its WA nickel assets, telling reporters on Thursday BHP still believed in the long-term outlook for the metal and that demand for electric vehicles and batteries would help demand again outstrip supply.
“I think we and others have been surprised at the growth in the supply side of the market, even if demand has played out as we anticipated. The market is certainly looking to be in surplus for the next three years, but we still have conviction beyond that,” she said.
Ms Slattery said there was no guarantee that BHP would return Nickel West to production in 2027, but the company was confident of the medium-term outlook.
“We look for a market that has a cost curve with some steepness to it, so we can capture a competitive margin within that. The quality of the assets does matter and the cost of production and capital does matter,” she said.
“We would need to see a market outlook that has a deficit within it so that we can earn an attractive return.”
More Coverage
