The BHP Group Ltd (ASX: BHP) share price is down 2% after the company announced billions of dollars of impairment charges.
BHP is best known for its iron ore mining, but it also mines other things like nickel, copper and coal.
Nickel pain
BHP said it’s an uncertain time for the Western Australia nickel industry and it’s taking action to address the current market conditions. It’s reducing operating costs at its Western Australia nickel and reviewing its capital plans for Nickel West and West Musgrave.
There has been a sharp fall in nickel prices – Indonesian nickel supply has increased and the London Metals Exchange started accepting Indonesian-origin nickel products. These unfavourable operating conditions are expected to endure for a “considerable time”.
BHP has reduced its nickel price assumptions, and capital costs for Western Australian nickel have increased due to inflation.
BHP has decided to reduce/impair the value of its Western Australian nickel assets to negative US$0.3 billion, including closure and rehabilitation provisions of approximately US$0.9 billion.
The mining giant is recognising a US$3.5 billion pre-tax charge against the value of its nickel assets. That’s a lot of value that’s just gone up in smoke, which is painful for the BHP share price.
Samarco
BHP Brasil, along with Samarco and Vale, continue to progress negotiations towards a settlement.
The ASX share is recognising an income statement charge of US$3.1 billion (pre-tax) relating to the Samarco dam failure. BHP Brasil’s provision for the Samarco dam failure will be US$6.5 billion as at 31 December 2023.
On 25 January 2024, the Federal Court of Brazil issued a decision quantifying collective moral damages from the dam failure. The decision found that Samarco, Vale and BHP Brasil are jointly and severely liable to pay collective moral damages of around US$9.75 billion, to be adjusted for interest and inflation, when appeals are finally determined. The miners have filed a motion about “factual inaccuracies in the decision, including the calculation of damages.”
Time will tell what the final cost is.
Final thoughts on the BHP share price
It’s not surprising that the ASX mining share has fallen – these are big hits to BHP’s profit and balance sheet that we’re talking about.
I think BHP is a good miner, but it can’t help what’s going on with the nickel price.
The iron ore price is still around US$130 per tonne, so it’s making good profit. But I’d suggest waiting until the iron ore price is below US$110 per tonne (or even lower) before buying.
