The BHP Group Ltd (ASX: BHP) share price is under the spotlight after the company revealed that it was suspending its nickel mining.
BHP’s difficult nickel decision
The ASX mining share announced yesterday late afternoon that its Nickel West operations and West Musgrave project will be “temporarily suspended” from October 2024 and a transition period will start this month (July 2024).
BHP said it intends to review this decision by February 2027.
Why did it do this? The miner referenced an oversupply in the global nickel market. Analyst estimates about the future of nickel prices over the next half of the decade have “fallen sharply” according to BHP, reflecting “strong growth of alternative low-cost nickel supply.”
During this “temporary” suspension, BHP said it would continue to support its workforce and local communities. BHP will “invest approximately US$300 million (AU$450 million) per annum following completion of a transition period to support a potential re-start of Western Australian Nickel.”
BHP said it will implement a ‘care and maintenance’ program of work to ensure the ongoing safety and integrity of its mine and related infrastructure. It will also keep exploring to extend the resource life of its nickel operations and “preserve optionality”.
Nickel employees will be offered another role within BHP or the choice of a redundancy. BHP will establish an A$20 million community fund to support local communities during the suspension.
Financial considerations
The ASX mining share said since FY20, BHP has invested around US$3 billion to sustain its nickel operations as an ongoing business and to refocus its production to the battery and electric vehicle market. That includes establishing Australia’s first nickel sulphate plant to enhance ‘downstream’ infrastructure, building two new mines and investing in the development of two solar farms and battery storage. BHP’s nickel business has reported negative cashflow every year during this period.
The lower global nickel price has led to Western Australia Nickel expecting to report an underlying EBITDA loss of approximately US$300 million in FY24 (to 30 June 2024).
In February 2024, BHP announced an impairment charge of US$3.5 billion, pre-tax against the carrying value of Western Australia Nickel. BHP expects to record a further impairment charge of US$0.3 billion in FY24.
Final thoughts on the BHP share price
Nickel is a relatively small part of the BHP business – it’s a huge miner, so these difficulties aren’t significant for the miner’s overall operations.
However, BHP can’t control what happens with nickel prices so at this stage it’s difficult to see things significantly changing for the foreseeable future. It’s the right move by BHP to try to limit the pain for shareholders. Any redundancy payments will be included in the FY24 first-half result.
I don’t think the BHP share price is at bargain levels, so I’d rather look at other ASX dividend shares and ASX growth shares.
