BHP says Australian support for nickel miners ‘may not be enough’ to save industry

BHP said the Australian government’s intervention to save the country’s nickel industry “may not be enough” as a write-off in the value of its nickel operations drove a near 90 per cent drop in first-half net profit.

Australia’s nickel industry is confronting a crisis with a number of companies suspending operations due to a collapse in the metal’s price driven by a supply glut from Indonesia.

BHP on Tuesday reported a net profit of $927mn for the six months ending in December due to impairment charges taken against Nickel West, its Western Australian operation, and its Brazilian iron ore assets. Excluding those charges, the company’s underlying profit of $6.6bn was flat year on year.

The Australian government is concerned about the potential loss of thousands of jobs in the mining sector and the industry’s collapse. It has offered production tax credits, royalty relief and potential non-recourse loans and grants to support the industry.

Mike Henry, chief executive of BHP, said the miner supported the production credits, but the market was going through a structural change. “That may not be enough, given the challenges in the nickel market today, to alter course,” he said.

BHP is reviewing whether to suspend operations at Nickel West, which operates a mine and a smelter, after entirely writing off the unit’s value. Henry said nickel demand remained healthy, driven by electric vehicle demand, but it would take time for “supply and demand to recalibrate”.

He estimated the Indonesian supply glut could continue until the end of the decade. BHP had booked a $3.5bn pre-tax impairment charge on the unit last week.

Henry stressed that nickel was BHP’s smallest division and that it saw other resources including copper, potash and iron ore as stronger growth drivers for Australia’s largest company by market capitalisation.

BHP said it would pay an interim dividend of 72 cents a share, better than analysts had expected, reflecting a strong performance in its copper and iron ore operations.

Paul McTaggart, an analyst with Citi, said BHP’s outlook was also buoyed by a modest improvement to the global economic outlook.

“China and India are expected to remain relative sources of stability for commodity demand, as they have been over the past twelve months,” the analyst said.