BHP takes $10b hit on nickel slump, Samarco bite

Mining giant BHP will take a huge $10.3 billion hit to its bottom line after the global collapse of nickel prices forced a write-down across its Australian operations and legal developments in Brazil made it double the money set aside against the disastrous collapse of the Samarco dam.

The country’s largest miner announced on Thursday a $US3.5 billion ($5.4 billion) pre-tax impairment against the carrying value of its Western Australia nickel operations ahead of its half-year financial results which are due out on Tuesday.

Global nickel prices have slumped.
Global nickel prices have slumped.Credit: AP

At the same time, developments in a legal case in Brazil over the fallout from the disastrous 2015 Fundao tailings dam collapse, which killed 19 people and spewed millions of tonnes of toxic waste into the country’s waterways, prompted the miner to set aside a further $US3.2 billion ($4.9 billion), taking its total provision for the catastrophe to $US6.5 billion.

The fallout from the dam collapse in Brazil, a joint venture BHP owned alongside Brazilian miner Vale, has mired BHP in two major legal proceedings.

In January, a federal court decision in Brazil found Samarco, Vale and BHP Brasil liable for collective moral damages of $US9.75 billion, prompting the mining giant to boost its provisions on Thursday. Another case in the High Court in London claims BHP is financially liable for the damage caused by the dam bursting, seeking $US44 billion.

BHP chief executive Mike Henry said the miner is reducing operating costs at Western Australia Nickel and reviewing its capital plans for Nickel West and West Musgrave.

“This is an uncertain time for the Western Australia nickel industry and we are taking action to address the current market conditions,” Henry said.

Its Nickel West business employs about 2500 people and any downsizing of the West Australian mining operations, smelter in Kalgoorlie and refinery in Kwinana will reverberate across the industry.

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BHP is Australia’s largest mining company and single largest investment for many of the country’s biggest super funds.

The nickel industry is facing challenges from a flood of output from Indonesia and there has been a sharp global fall in London Metals Exchange benchmark prices.

Homes lay in ruins in Bento Rodrigues, Minas Gerais, Brazil, after the Samarco dam burst on November 5, 2015.
Homes lay in ruins in Bento Rodrigues, Minas Gerais, Brazil, after the Samarco dam burst on November 5, 2015. Credit: AP

“These unfavourable operating conditions are expected to endure for a considerable time,” the company said.

Costs for its Western Australia Nickel also increased, the company said, reducing the value of Western Australia Nickel’s net operating assets to negative $US300 million, a figure that includes money for the closure and rehabilitation of its assets.

BHP said Nickel West’s Kambalda concentrator will be placed into care and maintenance in June 2024 after Andrew Forrest’s Wyloo suspended the operation of its nickel mines. They feed the bulk or ore into the Kambalda concentrator.

BHP will also review development plans for Western Australia Nickel with a focus on preserving
cash, including the possibility of putting Nickel West into a period of care and maintenance.

Its West Musgrave project, which BHP acquired as part of the OZ Minerals takeover, is about 21 per cent complete, but the company is also reviewing its future.

More to come

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Source: Thanks smh.com