Among the major news on Australian stocks, BHP Group Limited (AU:BHP) is halting its Western Australian (WA) nickel operations due to a global oversupply that has caused a slump in nickel prices. The suspension, beginning in October, affects its Nickel West operations and the West Musgrave project in Australia. BHP plans to review its decision by February 2027. BHP shares have lost 0.62% as of writing.
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BHP is a multinational mining company that produces a wide range of commodities, including iron ore, coal, copper, nickel, and more.
BHP Faces Nickel Market Turmoil
Over the past few years, the nickel market has seen a prolonged decline, hurting the operations of miners in Australia. The primary cause of the price drop is a significant oversupply of inexpensive, low-grade nickel pig iron (NPI) from China and Indonesia.
Since FY20, BHP has invested approximately AU$4.4 billion to support its nickel business and shift its production focus toward the battery and EV (electric vehicle) markets. Despite these investments, the company struggled to revive its nickel operations. As a result, the company now expects an underlying EBITDA (earnings before interest, tax, depreciation, and amortization) loss of $300 million for FY24 due to its WA nickel business, along with a non-cash impairment charge of $300 million.
Moving forward, BHP will continue to invest approximately AU$450 million ($300 million) annually in the WA nickel operations to facilitate a potential restart. Moreover, the company will support its workforce and local communities during the transition period, which starts in July, with an AU$20 million community fund.
Analysts’ Reactions
Morgan Stanley analysts were not surprised with the announcement and stated the decision as “prudent.”
Meanwhile, analysts from Macquarie said that the company made the right choice to suspend operations due to the financial strain and poor returns. They also noted that this will enable BHP to focus on copper growth, which is crucial for its transition away from fossil fuels.
Is BHP Currently a Good Buy?
According to TipRanks’ consensus, BHP stock has been assigned a Moderate Buy rating, backed by 10 Hold and seven Buy recommendations. The BHP share price target is AU$44.64, which is 3.08% above the current trading price.
