Tax credits not enough to keep Nickel West alive, says BHP boss
Nickel West faces an uncertain future as mining giant BHP says a dismal market may persist for years to come.
BHP has warned an Albanese government lifeline for the beleaguered nickel sector in Western Australia may not be enough to keep its operations alive with the mining giant needing to weigh up whether it can sustain competition from a flood of new supply from Indonesia.
The Melbourne-based miner flagged last week it was considering putting the nickel division into care and maintenance, and halting the construction of the West Musgrave nickel mine acquired with the company’s takeover of OZ Minerals last year.
The WA government is looking to offer royalty relief to nickel producers in response to a wave of mine closures, and the federal government flagged the possible introduction of production credits to keep the country’s ailing nickel sector alive.
BHP chief executive Mike Henry told reporters on Tuesday the simple introduction of a production credit would not be enough to swing the company’s final decision, and that the company needed to be confident Nickel West could compete with the flood of new supply from Indonesia without the aid of subsidies.
“I want to be very clear here – we are not, as BHP, asking the government to save BHP nickel operations,” he said.
“There’s been a broader industry call, starting with others, for production tax credits, and we’ve said okay, if that’s what the government believes is necessary to preserve the jobs and Australia’s role in supplying a critical mineral for the world, then we would be supportive of that.
“But we also want to be clear that may not be enough given just how significant the challenges in the nickel market are today.”
Anthony Albanese was quizzed about the BHP chief’s comments on Tuesday and said it would look to provide support for the industry.
“We understand that the nickel industry is an important one. We want to provide support, that’s why we’ve listed it as a critical industry. And we will engage, including engagement with the WA Premier here, about the way in which we can support this industry,” Mr Albanese said.
BHP is considering whether it would ever be able to return key Nickel West assets to production if they were mothballed in response to the current price crisis, according to Mr Henry.
Speaking after BHP delivered its half-year results on Tuesday, which showed the division slumped to a $US17m ($26.1m) loss for the period, before interest, tax, depreciation and amortisation – down from a $US90m EBITDA the year before.
Critically, the accounts also show a 28 per cent dive in revenue as the nickel price fall in the last six months of 2023.
Mr Henry noted that the company estimated that up to half of all global nickel supply was now losing money, with the company flagging a “difficult multi-year run” for the commodity, with supply likely to outstrip demand by more than 5 per cent until the late 2020s.
The BHP boss said the government should look to broader policy settings – including reversing its industrial relations settings, of which BHP has been the most vocal opponent – if it wants to encourage future growth in Australia’s mining sector.
“The call to arms for government is to ensure that the policy settings in Australia enable high levels of competitiveness globally, because the opportunity ahead for the nation isn’t just nickel. It’s in critical minerals more broadly – in lithium, in copper, in a world where competition is really going to heat up in the years ahead in iron ore,” he said.
“And the nation needs to be spawning new and exciting export industries. That only happens if the underlying fiscal and regulatory settings enable the driving of high levels of productivity. And the reality is that today we’re seeing costs go up without a commensurate increase in productivity. That isn’t a long-run winning model.”
Mr Henry would not put a time frame on when BHP might make a decision on the future of Nickel West, but said the company was studying its options – including cost-cutting measures, as well as closure – as a matter of urgency.
But the BHP boss said a review of whether it would be possible to return key Nickel West assets to production in the future would be a key part of those studies.
“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.
Mr Henry wouldn’t comment on whether BHP would consider selling Nickel West if a buyer came forward, saying any talk of an asset sale would be “getting a bit ahead of ourselves”.
“In the near term, we need to look at the ongoing viability of the business and whether we move it into care and maintenance,” he said.
Any decision to permanently close the smelter and refinery in WA would trigger the need to rehabilitate the 50-year-old industrial facilities, a process that could ultimately test the accuracy of the $US900m in rehabilitation liabilities currently sitting on BHP’s books.
Chief financial officer David Lamont said that figure had been reviewed as the company weighed the $US3.5bn pre-tax write down of the Nickel West assets.
“Anything in relation to going into care and maintenance, and the ongoing assessment of nickel, will be over a period of time. Any closure that we would face is not cash out the door immediately – it would be over a considerable period of time, like it would be for any of our operations.”