BHP’s West Musgrave nickel sale faces Indigenous royalty questions

Traditional owners have rejected claims their royalty deal stands in the way of BHP selling the prized asset within its unwanted West Australian nickel business.

BHP Nickel West Kalgoorlie Smelter

Traditional owners have rejected claims an unprecedented royalty deal stands in the way of BHP’s selling off what is regarded as ­potentially the most valuable asset within its unwanted West Australian nickel business.

However, the Ngaanyatjarra Council Group – representing some of Australia’s most remote and traditional Indigenous communities – said it was disappointed that BHP had suspended its nickel operations and development of the West Musgrave copper-nickel project in the first place.

The council group said it was in talks with the mining giant over its concerns about the future of the West Musgrave project in outback WA near the intersection of the Northern Territory and South Australian borders.

BHP’s efforts to divest its loss-making nickel assets kicked up a gear this week when the data room for prospective buyers opened as part of a sales process being led by Macquarie and closely watched by the Albanese and WA governments.

Interest in the West Musgrave copper-nickel project – acquired by BHP in the $9.6bn takeover of OZ Minerals – has been tempered by claims the traditional owners were entitled to a 7.5 per cent mining royalty.

BHP had made an initial takeover offer when OZ Minerals, keen to be able to green-light West Musgrave, finalised the mining agreement with the Ngaanyatjarra Council, Ngaanyatjarra Land Council and Yarnangu Ngaanyatjarraku Parna, which are all part of the Ngaanyatjarra Council Group, in 2022.

Asked if the mining royalty was 7.5 per cent, a Ngaanyatjarra spokesman said: “We wish. The production royalty is much lower than that, and broadly consistent with prevailing industry norms.”

The deal OZ Minerals struck with the traditional owners sets a high bar in terms of community oversight, consultation, reporting and powers of veto, and is considered generous by industry standards whereby iron ore miners have paid royalties of about 0.5 per cent.

The agreement requires the West Musgrave owner to develop and implement a cultural heritage management plan with involvement of Ngaanyatjarra Council and traditional owners via various governance and monitoring mechanisms. There is also provision for an annual commitment to social investment funding to support community and economic development initiatives across the Ngaanyatjarra lands.

“Ngaanyatjarra Council and the traditional owners have shared the disappointment of temporary suspension with BHP,” the Ngaanyatjarra spokesman said.

“We are working closely with BHP to address the concerns of the traditional owners given the circumstances of temporary suspension. We understand that BHP is working through the review process with no decision having been made to any potential divestment of West Musgrave.”

OZ Minerals put a $1.7bn price tag on developing West Musgrave in 2022 with the mine slated to produce 28,000 tonnes of nickel and 35,000 tonnes of copper annually over 24 years. Elsewhere in its nickel business, BHP has continued to pay royalties to traditional owners even though it is not mining and has shut down ­operations. BHP considers those deals commercial in confidence, and doesn’t not disclose details.

Some of the confusion around the West Musgrave royalty appears to stem from a treaty-like deal Mark McGowan – in one of his last acts as WA premier – struck with traditional owners in the northern Goldfields.

Under that agreement with the Tjiwarl people, miners were required to pay 7 per cent of their exploration spend and $150 per square kilometre to the traditional owners.

BHP is looking to sell the whole of its nickel business, which is weighed down by a $US900m rehabilitation and closure liability.

The divestment strategy includes selling parts of the business separately, including the West Musgrave project, which is being marketed as a copper plus nickel asset. Other parts of business up for grabs are tenements considered prospective for gold and nickel that have attracted interest from miners of the precious metal.

The Kambalda nickel concentrator is also up for grabs, and could attract interest from Andrew and Nicola Forrest’s private mining company Wyloo depending on whether they still see a future for nickel mining in Australia.

BHP’s Mt Keith and Leinster mines and its nickel smelter and refinery are also up for sale, but carry most of the rehabilitation and closure costs attached to the business. It is understood there is strong interest in at least some of the ­assets.

The sale process runs the risk of inflaming tensions between BHP and the Albanese and WA governments. Federal Resources Minister Madeleine King and BHP exchanged fire over the future of nickel business before BHP announced what it called a temporary suspension of operations in July 2024, and WA Premier Roger Cook labelled the move disappointing. BHP said at the time it would invest about $US300m a year to support a potential restart, pending a review of the suspension by February 2027.

The Mike Henry-led BHP wrote down the value of the assets by $US3.5bn in February 2024 at a time when the operations were losing more than $US33m a month. Wyloo and IGO Limited, two nickel players touted to be in the data room, have also booked massive writedowns on their ­assets in WA in the past two years.

Wyloo’s most recent accounts filed with the corporate regulator show a net loss of $381.2m for 2023-24, including a near-$300m writedown on the value of its nickel mines near Kambalda.