Indonesia will account for 49% of nickel production in 2023, up from less than 5% just eight years ago, according to Benchmark Mineral Intelligence.
Nickel division destroyed
The impact on Australia’s nickel industry has been dramatic.
ASX 200 producer IGO acquired nickel miner Western Areas for A$1.1 billion (US$744 million) in mid-2022. Just 18 months later, the full purchase price has been written off and the Kosmos development project has been halted, resulting in the loss of 400 jobs.
Wailoo Resources, owned by Fortescue founder Andrew Forrest, bought Kambalda nickel producer Minkol Resources for A$760 million but announced it was ceasing operations just seven months later.
A spokesperson for Wailu said: Mining.com A joint feasibility study with IGO for a nickel sulphate plant has been suspended.
In April, Canada’s First Quantum Minerals announced it would undergo maintenance at its nickel laterite mine at Ravensthorpe in southwest Western Australia.
Operations at the Savannah mine in Western Australia and the Avebury mine in Tasmania have also been mothballed after their owners, Panoramic Resources and Murray Resources respectively, went bankrupt.
BHP faces tough decisions
In February, BHP took a $3.5 billion non-cash impairment charge at its Nickel West unit and reported a negative EBITDA of $200 million, triggering a future review.
The worst was confirmed on Thursday when BHP announced it would “temporarily suspend” Nickel West, which includes the Kwinana nickel smelter, Kalgoorlie nickel smelter, Mount Keith and Leinster mines and the West Musgrave development, from October.
The Kambalda concentrator, which relied on third-party ore, was shut down earlier this year.
BHP will offer 1,600 “frontline” workers the option of redeployment or redundancy, but more than 3,000 jobs will be lost.
The decision is due to be reviewed by February 2027, and BHP has pledged to invest around $300 million a year to support a possible restart.
Once the moratorium is complete, Australia will have just three operating nickel mines – IGO’s Nova and Forestania and Glencore’s Marine Marine – although Forestania and Nova are due to close within the next two years.
Prior to the decision, the Australian government’s Office of the Chief Economist had forecast Australia’s nickel exports would fall from 161,000 tonnes in 2023 to just 62,000 tonnes in 2026.
A long history
Nickel was first discovered in the goldfields of Western Australia in 1966 and the town of Kambalda was established by the Western Mining Company (WMC).
The Kambalda Concentrator, Kalgoorlie Smelter and Kwinana Smelter were operational by the end of the decade.
BHP bought WMC in 2006 for $7.3 billion and it was initially highly profitable, with profits exceeding those of BHP’s world-class iron ore division in 2007, thanks to nickel prices soaring to $50,000 a tonne.
The global financial crisis changed Nickel’s fortunes dramatically, and in 2014 the business was deemed non-core and sold.
Despite interest from Glencore, the sale was called off after an acceptable price could not be reached, with the debt of more than A$1 billion and the heavy capital expenditure required to shut it down said to be obstacles.
Nickel West has remained a non-core division but was surprisingly excluded from the demerger of South32 in 2015. BHP had been keen to sell the division until 2017, and it was due to be closed in 2019.
The Electric Age
The rise of electrification has transformed Nickel West’s outlook, with BHP announcing it will build a nickel sulphate plant in Kwinana, an industrial area south of Perth, which will be the first and only facility of its kind in Australia.
With Tesla as its base customer, the factory produced its first crystals in late 2021.
BHP confirmed it has invested around $3 billion in Nickel West since the 2020 financial year.
Despite the heavy investment, Nickel West was cash flow negative during the period and was expected to report an underlying EBITDA loss of about $300 million for the 12 months to June 30.
“It is clearly not possible for us to continue operating with such significant and continuing losses,” BHP Australia president Geraldine Slattery told reporters.
The company plans to record another $300 million in impairment charges in its full-year results in August.
Political influence
Western Australian Premier Roger Cook and federal Resources Minister Madeleine King both live near the Kwinana refinery and are watching the review with interest.
At a conference in Perth in May, Cook urged BHP to think about supporting the Western Australian government and local communities before considering “whether to turn its back on Western Australia on the nickel industry”, while King criticised BHP for not investing more in its ageing facilities.
Mr Cook said on Thursday that BHP’s decision was disappointing and promised to support affected workers.
Mr King acknowledged that conditions in the nickel market were beyond BHP’s control.
“I’m really glad it’s a temporary closure and not a permanent closure because I think it would have been a lot worse,” she told local radio on Friday.
“Catastrophic”
Located about 600km inland from Perth, Kalgoorlie-Boulder is the largest town in the Western Australian Goldfields with a population of just under 30,000.
The City of Kalgoorlie-Boulder released a statement saying it was “deeply saddened” by the Nickel West news.
“This decision is devastating and will have significant impacts on the livelihoods of residents and businesses and far-reaching implications across the Goldfields,” the statement said.
Kambalda is about 60km from Kalgoorlie and has a population of about 2,500. Leinster is a further 300km north. Wiluna, which supports the Mount Keith mine, is 585km north of Kalgoorlie on the edge of the Western Desert and has a population of just 240.
Wiluna Shire chairman Peter Grundy said he was deeply concerned about the impact on the community.
“This decision came like a slow train across a red desert landscape and we are still shocked and disappointed,” he said.
“Decisions like these have knock-on effects. They may be touched on briefly in the boardroom, but for some people they are as real as a greasy, dusty, overdue bill.”
BHP has set up a A$20 million community fund, but many estimate it is not enough.
Is there any hope for Leinster?
Leinster, which has a population of just 400, is run by BHP Nickel West.
Jessica Farrell, Nickel West’s president of asset management, said the company owns about 280 homes in the town and hopes to have them available for workers to help with the management and maintenance process.
“Obviously, we will continue to fulfill our obligations to run the town,” she told reporters.
In a positive sign for Leinster’s future, the 200,000 ounce-per-year Bellevue gold mine recently opened and is already in expansion talks, while Liontown Resources’ A$1 billion Katherine Valley lithium mine is due to start first production within weeks.
Customers and suppliers focus on impact
Nickel West is also a supplier of sulfuric acid, which is produced as a by-product at the smelter.
Lynas Rare Earths has a contract with BHP to supply sulphuric acid to its Kalgoorlie rare earths facility until mid-2027. Lynas said BHP had confirmed its commitment to supply imported acid to the company.
The shutdown of the nickel sulfate plant will affect battery customers including Tesla, Panasonic and Toyota.
IGO is BHP’s only third-party ore supplier. An IGO spokesman said the company would not comment on contractual agreements but that the closure would not have a significant impact.
Shares in Kambalda nickel explorer Lannon Metals fell more than 12 percent to an all-time low on Friday.The company said it was considering alternative processing options to Nickel West, including buying or leasing the Kambalda dressing plant or developing a new facility.
The decision will also have implications for contractors and suppliers.
GR Engineering Services said the suspension of West Musgrave operations would impact its revenues by up to A$80 million in 2025, while local airline Alliance Aviation Services, which operates 24 return flights per week to its Nickel West base, reported an annual impact of A$3 million to A$5 million on its EBITDA over the next two years.
Other contractors and suppliers are expected to disclose impacts in the coming days.
The end of Australian nickel?
The nickel market is expected to remain oversupplied into the second half of the decade. Fastmarkets believes the market is oversupplied by up to 8% of demand.
Slattery said several options were considered for Nickel West, including partial abatement.
“Ultimately, this wasn’t about the cost of doing business, it was about the market outlook and the expected wider structural downturn in the market,” she said.
BHP expects the market to remain oversupplied for at least the next three years, but is confident it will see improvement beyond that.
“Obviously, there is uncertainty, but we have sufficient confidence to continue investing in our option to restart our Nickel West operations,” Slattery said.
Nickel West’s shutdown will reduce the nickel surplus but strengthen Indonesia’s advantage.
Costly Reboots
If BHP decides to stick with nickel, the company will have to “go all in”.
The West Musgrave nickel-copper project, acquired in last year’s A$9.6 billion takeover of OZ Minerals, cost a massive A$1.7 billion and is only partially constructed.
The concentrator, smelter and refinery are all nearly 60 years old and in need of investment.
The Kalgoorlie smelter in particular is in need of significant refurbishment, likely to cost more than A$500 million.
Any restart would require competing for capital with other large projects, including a possible new dressing plant at Chile’s Escondida copper mine.
Even at full capacity, nickel accounts for only a small part of BHP’s business, around 1-2 percent.
(Christy Batten)
