BHP concedes government help for nickel ‘may not be enough’ as it greenlights $1.4b WA iron ore project

BHP has confirmed government assistance could be too little too late in rescuing the drowning WA nickel operations that caused the Big Australian to cut its interim dividend, despite strong iron ore figures. Chief executive Mike Henry on Tuesday said the global nickel market “is so stressed” due to structural changes that government intervention in Australia might not shield local producers from the tsunami of Indonesian supply flooding the market and pushing prices down to unprofitable levels. “Production tax credits may not be enough to change course for producers, including BHP,” he said following the release of BHP’s half-year results. Mr Henry said BHP specifically was “not asking the government to save its operations”, but the company was supportive of broader industry calls for the tax credits. Prime Minster Anthony Albanese – in Perth on Tuesday – appeared to kill off any hope of an imminent decision on production tax credits. “You haven’t seen an announcement from the Government about production tax credits – you’ve seen speculation from journalists who keep trying to get ahead of themselves,” he said. “I’ve said that we’ll consider, in an appropriate way, measures in which we can support the industry.” Last week BHP announced it would write-off the entire value of its WA nickel portfolio and then some — equating to $5.4 billion — and was considering switching off the mines, putting 3300 jobs in jeopardy. Mr Henry did not put an exact timeframe on when the mining giant could put its nickel operations on care and maintenance if adequate government support does not eventuate. BHP’s smelter and refinery operations means the company has a “much more complex decision” in shelving its nickel assets compared to peers, Mr Henry said, flagging a decision would be made in “the months ahead”. WA nickel bled over $300 million in underlying earnings for the first half and combined with last week’s write-down, plus a circa $5b impairment relating to the Samarco dam disaster in Brazil, decimated BHP’s profit by 86 per cent to $US927m ($1.4b). It is the miner’s lowest half-year profit result in eight years. As a result, BHP trimmed its interim dividend to US72¢ a share, down from US90¢ a share a year earlier. This was despite revenue rising 6 per cent for the first half to $US27.2b thanks to a buoyant iron ore price, with underlying earnings from its powerhouse WA iron ore division rising 27 per cent to $US9.6b. On Tuesday BHP also announced it would push ahead with the Western Ridge Crusher iron ore project near Newman in the Pilbara to replenish its depleting supplies of the steelmaking input. The miner expects to outlay $US943m to bring the project to life, which is anticipated to deliver 25 million tonnes a year from FY2028. The project scope includes new ore processing and transport infrastructure, including construction of a new 30mtpa primary crusher and a 12km overland conveyor. It will use BHP’s existing infrastructure at its mammoth Pilbara iron ore hub, including processing at Mt Whaleback. BHP’s shares were down 0.3 per cent to $45.72 in early trade, broadly in line with its major WA iron ore competitors. Analysts across the board said the half-year result offered few surprises after BHP wheeled out its major impairments last week. “Most key metrics were in-line with consensus, except we had a higher payout ratio,” RBC analyst Kaan Peker said. Moody’s senior analyst Saranga Ranasinghe said the results “were in line with expectations”, noting that BHP’s credit profile remains strong supported by a low-cost asset base and “conservative” financial policies. “Uncertainty remains over the level of support BHP will need to provide to Samarco and potential payments the group may need to make,” he said. “However, given the provisions already taken and the group’s strong liquidity profile, we currently expect these future costs to be manageable within the rating parameters.” UBS analyst Lachlan Shaw said dividends were better than expected, but net debt of $US12.6b was at the upper end of guidance. He retained his $44 price target and his preference for Rio Tinto over BHP.