by fnnewz
BHP Group Ltd.’s first-half net income fell 86% from a year earlier after oversupply in the nickel market forced the world’s largest miner to write down the value of key assets.
The company announced last week it would take a $2.5 billion impairment on the value of its Australian nickel assets, which could be suspended later this year following a review.
Global supplies of the metal, which has become key to the energy transition due to its use in electrification and batteries, soared after Indonesia rapidly increased production, causing benchmark prices to plummet and the closure of at least six nickel projects in Australia in the past. year.
“There will be a multi-year period of nickel oversupply” that could last until the end of this decade, Chief Executive Mike Henry said in a Bloomberg Television interview on Tuesday after BHP announced its results. “The consideration we need to have with nickel is what we do with our business in the meantime, given that it is currently loss-making and has been for some time.”
The company reported that underlying profit attributable to continuing operations in the six months to December 31 was stable at $6.57 billion, slightly below analysts’ estimate. Still, it was the massive drop in net income that most focused investors’ attention, along with the cut of its interim dividend to 72 cents per share, down from 90 cents in the previous six months.
Shares in Sydney-based BHP fell as much as 1% on Tuesday before trading down 0.2% at A$45.97 at 12:51 pm local time.
Rising demand for raw materials in recent years has hit BHP’s profits, a trend that began during the pandemic and has continued due to the deteriorating outlook for China’s economy and, in particular, its property and construction sectors. metal intensive. Last year, just 12 months after posting its highest-ever profit as prices soared, the company reported its lowest annual profit in three years.
BHP said on Tuesday that all its assets were on track to meet full-year production and cost targets, with demand from its main customer China “healthy” despite weakness in its property sector. The six-month reporting period “had its challenges,” it said in a statement, referring to its nickel assets, which “offset strong operating performance and healthy overall commodity prices.”
In a move aimed at supporting its ailing domestic industry, Australia last week added nickel to its List of Critical Minerals, allowing miners and metal stakeholders to access the A$6 billion ($3.9 billion) ) available through the Critical Minerals Facility, a Government Fund aimed at ensuring Australia is at the forefront of the green metals transition.
Prime Minister Anthony Albanese said in an interview on Monday that his government was looking at “how we can provide more support with smart, targeted, time-limited policy” for the nickel sector.
Still, BHP’s Henry said Tuesday that federal tax credits and state-level royalty reductions may not be enough to prevent it from closing its Nickel West operations, which have not been profitable since 2018.
“Given the current uncertainty over the nickel price, it is difficult for BHP to justify a large capital outlay” and avoid putting its Australian nickel assets into care and maintenance, RBC Capital Markets analyst Kaan Peker said in response to submitted questions. by email. The company will seek “additional government incentives associated with the construction of downstream processing infrastructure associated with nickel, which the Australian government now considers a critical mineral,” he added.
Beyond nickel, iron ore remains the company’s most important source of income. Steelmaking material prices rose 28% during the reporting period and remain historically high, and that has led major producers, including BHP, to consider developing once-stranded deposits.
BHP and its investors will also be watching whether China’s once insatiable demand for metals can be revived. The country’s construction sector is expected to recover next month, and there will be focus on whether Beijing will inject more fiscal stimulus to effectively counter sharp declines. of the collapse of the metal-intensive real estate market.
“In the near term, the economic outlook for the developed world is expected to improve modestly after a difficult year for steel and non-ferrous metals demand,” BHP said in the statement. “China and India are expected to remain relative sources of stability for commodity demand.”
The company also said last week it would nearly double the provision set aside to cover damage caused by the failure of the Samarco dam in Brazil in 2015 to $6.5 billion.
