In $8.6b blow, BHP’s profit is decimated by nickel woes, Samarco

By Simon Johanson

BHP boss Mike Henry says the Albanese government’s proposed production tax credits may not be enough to salvage Australia’s crashing nickel industry, which could face a global oversupply of the metal until the end of the decade.

The mining giant has taken an $8.6 billion hit to its half-year profit after a $US2.5 billion ($3.8 billion) writedown of its loss-making Western Australian nickel operations and a $US3.2 billion provision to deal with the Samarco dam disaster in Brazil.

BHP says its Western Australia iron ore operations remain the lowest cost major producer globally.
BHP says its Western Australia iron ore operations remain the lowest cost major producer globally.Credit: Ian Waldie/Bloomberg

The Nickel West and West Musgrave writedown – the result of a global crash in nickel prices – and the charge against Samarco undermined what was otherwise a solid operational performance amid overall healthy commodity prices.

The company increased revenue by $US1.5 billion, largely off the back of higher iron ore and copper prices as well as its Oz Minerals acquisition of the Prominent Hill and Carrapateena mines. The revenue boost was partly offset by New South Wales Energy Coal where, despite a 43 per cent jump in sales volumes, realised prices fell by 65 per cent.

BHP’s underlying half-year profit was $US6.6 billion, but after the $US5.6 billion write-off its profit slumped 86 per cent to $US972 million ($1.49 billion). The company’s revenue was up 6 per cent to $US27.23 billion ($41.63 billion) and the miner said it will pay an interim dividend of $1.10 per share – the lowest since 2020.

As a result of the collapse in nickel prices, BHP is reviewing its Australian nickel mines, smelter and refinery and may shut them for the foreseeable future, putting more than 3000 of jobs at risk, although it has yet to decide a course of action. “It’s really too early to call yet,” Henry said about the number of employees likely to be affected.

“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.

The review follows a surge in supply out of Indonesia last year that slashed global prices and shuttered Australia’s nickel sector seemingly overnight, prompting the closure of a handful of mines and crisis talks between the Albanese government and industry about production tax credits to support the sector.


However, Henry said policies like a production tax credit “may not be enough given just how significant the challenges in the nickel market are today”.

“The single biggest factor is this surge in supply that’s come out of Indonesia, which has taken everybody by surprise. We expect that’s going to persist for a period of time, possibly through to the end of this decade.”

BHP chief executive Mike Henry.
BHP chief executive Mike Henry.Credit: Wayne Taylor

Volatility in global commodity prices and demand for BHP’s ores from the developed world was softer than expected. However, demand from China is “healthy despite weakness in housing and India remains a bright spot”, the company said.

Henry said China’s steel output could exceed a billion tonnes for a sixth year straight. “That’s pretty positive, and it’s because certain sectors of the Chinese economy that are performing quite well … remain steel intensive.”

The miner pointed to a solid recovery in Chinese demand from sectors such infrastructure, lower carbon emissions technology, manufacturing, automotive, shipbuilding and consumer durables, but said there is still weakness in the steel-intensive real estate sector and non-steel exports.

BHP is not banking on India becoming a major import market for its iron ore long term. Instead, it aims to remain the lowest cost major producer globally. “The safest thing for us to do is ensure that we are at the very low end of the cost curve with the most cost competitive iron ore business in the world,” Henry said.

The miner set new production records for copper output at its mines in South Australia and Chile with production up 7 per cent to 894 kilo tonnes. The average realised wet metric tonne price of iron ore was up 21 per cent at $US103.70 over the half year.

BHP said the long term mega-trends playing out around the world continue to underline its confidence in future demand for steel, non-ferrous metals and fertilisers.

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