BHP to book £5.3bn charge on Samarco dam disaster and nickel ...

Thursday 15 February 2024 8:00 am

Mining giant BHP has said today it will take a non-cash impairment charge of approximately $3.5bn (£2.8bn) against the carrying value of its Western Australia Nickel arm. It will also take on a $3.1bn (£2.5bn) additional charge as a provision for the Samarco dam failure, it has been revealed.

The additional charge, shown in its results for the six months to the end of December, will take the company’s total provisions for the dam failure to $6.5bn (£5.2bn).

BHP said it had decided to boost its provision against the disaster following the consideration of “additional information available from the status of settlement negotiations” as well as the “the judicial decision regarding collective moral damages.”

At the end of January, the Federal Court of Brazil found that BHP and its partners Samarco, Vale and BHP Brasil, were “jointly and severally liable to pay collective moral damages” of $9.75bn (£7.8bn) (to be adjusted for interest and inflation). The parties dispute this figure and filed a clarification motion with the Federal Court of Brazil “in respect of certain factual inaccuracies in the decision, including the calculation of damages.”

A decision on the motion remains pending and BHP’s local subsidiary, BHP Brasil also intends to appeal the decision, challenging the merits and amount of damages. However, the company has warned the process could take two to five years.

BHP also said today it will book an impairment charge on its Western Australia Nickel division. The company acquired the West Musgrave project from OZ Minerals when it bought the latter company at the beginning of 2023. BHP paid $6.4bn (£5.1bn) for the company and its flagship nickel project. It later integrated the business into its Western Australia Nickel division.

However, due to deteriorating conditions in the nickel market, BHP has said it will write down the value of the deal.

The company said: “Due to the deterioration in the short-term and medium-term outlook for nickel, BHP has lowered its nickel price assumptions. In addition, capital costs for Western Australia Nickel have increased due to inflation. BHP has undertaken a carrying value assessment of Western Australia Nickel having regard to these factors and will recognise an impairment as at 31 December 2023.”

The news follows Glencore’s decsion to sell its stake in a nickel mine and a processing plant on the islands of New Caledonia. The world’s largest commofity trader owns a 49% stake in Koniambo Nickel project, and due to sprialling costs and low nickel prices, it has decided to suspend operations until a new investor is found. The miner has announced $4bn (£3.2bn) in writeoffs related to the project.