BHP in US$3.8 B nickel asset write-off in response to nickel price collapse

Write-off of Nickel Assets

The price collapse of nickel from almost US$50,000 a tonne two years ago to US$16,400 a tonne today has led BHP Group to write-off its nickel assets to zero. The total write-off amount is US$3.8 billion. The write-down follows BHP’s decision to shut down its loss-making nickel operations in Western Australia from October 2024. Operations include the Kwinana nickel refinery in Perth, the Kalgoorlie smelter and its major mines at Mt Keith and Leinster in the West Australian Goldfields. Up to 2000 jobs and contractor roles are directly impacted by the shut-down. BHP has established a $20 million community fund to support the towns affected by the closures.

BHP has said the Group is open to re-commencing nickel operations and will review its decision by February 2027. However, nickel represents just one percent of BHP’s current earnings and so there appears little strategic imperative for the Group to re-enter the nickel market.

The challenge for BHP’s nickel ambitions is that Indonesia is now producing vast quantities of high-grade nickel that is trading on the London Metals Exchange (LME). Indonesia is a low-cost producer and being a commodity, nickel buyers are indifferent as to where they source their nickel supply. Indonesian-origin nickel products now being traded on the LME makes it easily accessible by users of the metal that is an essential element for the global clean energy transition. BHP has stated that the unfavourable nickel pricing market conditions are expected to endure for a considerable time. This raises the spectre that BHP may not re-commence nickel operations in Western Australia which for now are in ‘care and maintenance’. The alternative is to sell its Western Australian nickel operations to a major nickel miner such as Glencore, which owns the nearby Murrin Murrin mine which produces high-grade refined nickel and cobalt.

Portfolio is leveraged to megatrends

BHP is not just about high-grade iron ore that is in resilient demand from the expanding economies of China, India, and South-east Asia. Its portfolio of world-class assets includes a large-scale potash mine with a potash plant under construction that is scheduled to commence production from late in 2026. Potash plays into the food security theme and is used to produce fertiliser which provides the soil nutrients required to improve crop yield to address a growing world population and restraints on agriculture land.

BHP also has a strategic focus on copper as it builds on its copper assets in South Australia and Chile. Plans are in place for a copper refining smelter in South Australia to commercialise its significant resource base in the state. BHP is advancing its Chilean copper growth options, and a significant announcement is likely this year about the Group’s down-stream expansion plans at its Escondida mining operation.

BHP also produces high quality premium coking coal for a growing market that is set to continue for decades to come.

BHP operates in an opportunity-rich environment in which demand for its commodities is supported by population growth, urbanisation, industrialisation, rising living standards and de-carbonisation. Moreover, as a large-scale operator, it has a lower cost curve than competitors for its end-to-end logistics that delivers operational productivity and economies of scale, which supports margin expansion in times of global economic growth. Accordingly, BHP shareholders can reasonably anticipate share value accretion over the medium to long-term.