BHP Group Ltd (ASX: ASX:BHP) shares have come under pressure, falling 0.54%% to AU$43.32 apiece on Friday afternoon. This decline follows a significant announcement from the mining giant that has concerned investors and impacted market sentiment.
Temporary Suspension of Nickel Operations
BHP has announced the temporary suspension of its Nickel West operations and the West Musgrave project in Western Australia. This decision, effective from October, is not a short-term measure. The company plans to review the suspension by February 2027, indicating a potential hiatus of up to two and a half years.
Reasons Behind the Suspension
The suspension is attributed to weak nickel prices and an anticipated prolonged period of low prices due to oversupply in the global nickel market. Management highlighted that forward consensus prices for nickel over the next half-decade have dropped sharply, reflecting the growth of alternative low-cost nickel supply. This economic challenge has led BHP to make the difficult decision to halt operations temporarily.
Economic Impact and Continued Support
During the suspension, BHP has committed to supporting its workforce and local communities. The company plans to invest approximately US$300 million (AU$450 million) per annum after a transition period to support a potential re-start of its Western Australian Nickel operations. The suspension affects several key assets, including the Kwinana nickel refinery, Kalgoorlie nickel smelter, Mt Keith and Leinster operations, and the development of the West Musgrave project.
Management's Perspective
BHP's Australian President, Geraldine Slattery, emphasized that since the review of Western Australian Nickel began in February, the company has explored various options to mitigate short-term losses and identify a sustainable path forward. Despite these efforts, the global oversupply of nickel has created substantial economic challenges that BHP, like others in the Australian nickel sector, could not overcome. This has led to the necessary decision to temporarily suspend the operations.
Investment in Future Prospects
Despite the suspension, BHP remains committed to Western Australia as a key investment destination. The company will continue to invest approximately AU$450 million (US$300 million) annually in the Nickel West facilities to enable a potential re-start. Additionally, BHP plans to invest more than AU$12 billion in Western Australia over the next five years, working with local partners to advance the state's economic prosperity.