BHP (ASX:BHP) Group Ltd (LSE:BHP, ASX:BHP) has reduced the number of contractors at its Kalgoorlie nickel smelter, with CEO Mike Henry committing to resolving the future of the loss-making division "as soon as practicably possible".
The decision to halt work on the smelter's new precipitation system resulted in the immediate stand-down of involved contractors. This action is part of BHP's broader consideration to potentially mothball its nickel operations in Western Australia, amid plans that had initially involved nearly $1 billion in refurbishment for the 51-year-old smelter.
Despite these developments, the Kalgoorlie smelter remains operational. However, the cessation of work on the new precipitation unit does not directly indicate a closure is imminent.
This move aligns with BHP's strategy to rapidly reduce expenses, following significant workforce reductions at its West Musgrave nickel and copper project in WA.
During a shareholder briefing, Henry expressed sympathy for the employees affected by the uncertainty surrounding the nickel division, which had unit costs of “about US$20,000 (A$30,620) a tonne” well above the US$17,675 a tonne benchmark nickel price reported by the London Metal Exchange on March 18.
“So just from an operating margin basis, we are in the red. That means the business is losing cash and at the same time there is a need for ongoing investment in the business just to keep it safe and running properly,” Henry said.
“On top of that we have the need for a major [Kalgoorlie] smelter rebuild coming toward us which is many hundreds of millions of dollars in capital expenditure.
“Clearly this isn’t sustainable, it is not the best use of funds for shareholders, so we have to figure out how we make this business more sustainable. Part of that is about bringing costs down, part of it is choices we make around capex [capital expenditure].”
Future of the division
On February 15, BHP announced a review of the nickel division's future, with potential mothballing as one of the options. Henry noted the technical and operational complexities involved, especially concerning the smelter and refinery.
While nickel constitutes a minor part of BHP’s overall earnings, the division employs approximately 3,000 individuals and supports many more jobs indirectly.
BHP had considered selling the division between 2010 and 2018 but opted to retain it, anticipating increased demand from battery manufacturers.