Monsters of Rock: Everyone wants their say on this Nickel West deal

Pollies weigh in on Nickel West
BHP division closure spells complications for Lynas Rare Earths
Gold prices see bullion producers dominate gains on Friday

Pollies have gone on the offensive in an attempt to make the BHP (ASX:BHP) decision to shut its 80,000tpa Nickel West business until at least 2027 about them and their opponents, while Lynas (ASX:LYC) has revealed the business fallout from the sale.

It didn’t take long for political point-scoring to emerge around the decision, which will see around 3000 roles liquidated at the 58-year-old nickel business.

That will include 1600 operators who have been told they will be offered jobs elsewhere in BHP’s business, alleviating shortages at its South Australian copper and WA iron ore mines.

Another 800 ancillary staff will have to wait to see if there’s anything suitable, while the rest are contractors and construction workers at the suspended $1.7bn West Musgrave project.

The decision had been effectively flagged by BHP months ago when it booked a $5.1bn impairment on the carrying value of the nickel mines, Kalgoorlie smelter, Kwinana refinery and concentrators in Kambalda and the Northern Goldfields.

Nickel prices had deteriorated due to a ramp in supply from Indonesia while demand growth has been hit by shifting EV technology, with a growing number of cheaper consumer EVs made with batteries that don’t contain the rare and expensive metal.

BHP’s President Australia Geraldine Slattery said yesterday BHP was hoping EV demand growth would push the market back into surplus by the late 2020s, circumspectly saying it had not asked for political intervention to save its hide.

On that measure it seems there was little to be done, with market forces proving ill-timed decision to chase the EV revolution by making Nickel West a core division in 2019.

Not if you ask a politician, though.

“The Federal Government missed a crucial opportunity in their Budget to provide immediate support for the nickel industry. The production tax incentives, which could have offered much-needed relief, were instead delayed until 2027,” WA Nationals opposition leader Shane Love said.

“Our critical resources sector needs support now, not in three years. Labor has delayed essential support, leaving our critical industries without the help they need to stay competitive in the global resources market.

“Politically motivated and controversial industrial relations legislation and increased green tape in such as the Nature Positive Plan and further environmental reforms have further added to instability and uncertainty for industry.”

The industrial relations changes, branded same job, same pay, have been heavily contested by BHP, with the measures largely targeted at hiring practices on its Queensland coal mines.

Slattery and BHP made no link between those squabbles and nickel in their closure statement, with Nickel West losing US$300mn ($450m) a year even before any IR changes were taken into account.

But Love said representatives from the resources industry he’d met in the Goldfields expressed concern about volatility in the commodity and a lack of support from authorities.

“Meanwhile, the royalty relief promised by the Cook Labor Government has proven to be insufficient,” he said.

“It’s clear that the measures offered by both governments do not match the scale of support needed – something that was evident to the Opposition and the resources sector but ignored by the decision-makers in Parliament.”

READ: BHP shuts nickel operations as oversupply ends turnaround tale

Lynas to count cost

Resources Minister Madeleine King, who did the rounds on radio today, defended the support offered to the industry, saying the complexities of managing a 50-year-old supply chain and market conditions meant its intervention was not going to help.

“BHP don’t really have a capital problem; they have a cash-flow issue here, and a very significant one. And they have tried to work through it as best they can,” she said on the ABC.

“And I really am grateful that it’s a temporary suspension and not a more, I suppose, dead-end kind of closure, which would be even a worse situation, that they’ve considered that and gone into that temporary suspension rather than something much more permanent.”

Nickel West is the latest Aussie nickel mine to close after prices halved last year, with inflationary pressure and ageing mining infrastructure also pushing cost pressures higher.

Andrew Forrest’s Wyloo shut its Kambalda mines, a supplier to BHP, Panoramic Resources’ Savannah ops were closed, IGO (ASX:IGO) suspended construction of the Odysseus mine and the Avebury mine in Tasmania was also put on mothballs, while First Quantum Minerals and POSCO shut their Ravensthorpe ops.

Immediately the flow-on effect from Nickel West’s closure will be felt by other miners, though.

It is a big supplier of sulphuric acid through a plant that processes sulphide waste at the Kalgoorlie Nickel Smelter, a by-product of nickel matte production.

One of its customers is Lynas, which recently built a cracking and leaching processing plant in Kalgoorlie as part of its global rare earths supply chain.

“Lynas has a contract with BHP Nickel West for the supply of Sulphuric Acid to the Kalgoorlie Rare Earth Facility from either the Kalgoorlie nickel smelter or imported sources,” Amanda Lacaze-led Lynas said in a statement.

“The initial term of the contract is until June 30, 2027. BHP’s ability to supply acid from the Kalgoorlie nickel smelter will be affected by BHP’s announcement.

“In line with the terms of the supply contract, BHP has affirmed its commitment to using reasonable efforts to supply imported acid to Lynas. Sulphuric acid is available for purchase on global markets.

“Lynas and BHP have been working together on contingencies for continued acid supply to Kalgoorlie and these plans will now be finalised for implementation.”

BHP shares, with largely trade on iron ore prices, were down just 0.37% today, with major Indonesian producer Nickel Industries (ASX:NIC) largely unaffected, up 0.61%.

The materials sector ended Friday 0.7% up and the week 0.57% down, with gold stocks among the prize winners after prices lifted to US$2409/oz (less than US$20/oz off record highs seen in May) on a weak US CPI print.