Commodities major BHP on Thursday announced the suspension of production at its Western Australian nickel operations, citing a global oversupply in the nickel market.

The decision follows a review of its Australian nickel operations that BHP initiated in February.

The group said forward census nickel prices over the next half of the decade had fallen sharply, reflecting strong growth of alternative low-cost nickel supply. The suspension decision would only be reviewed by February 2027.

“Since BHP announced a review of Western Australia Nickel in February, we have explored options to stem losses in the short term and identify a viable path forward for the business.

“Like others in the Australian nickel sector, we have not been able to overcome the substantial economic challenges driven by a global oversupply of nickel,” said BHP Australia president Geraldine Slattery.

The transition period will start this month and operations will be suspended in October. Handover activities for temporary suspension will be completed by December.

During the temporary suspension, BHP will suspend mining and processing operations at the Kwinana nickel refinery, Kalgoorlie nickel smelter and Mt Keith and Leinster operations and the development of the West Musgrave project.

The company will continue to invest in exploration to extend the resource life of Western Australia Nickel and preserve optionality.

During the suspension, BHP will support its workforce and local communities. The group committed to invest about A$450-million a year to support a potential re-start of Western Australia Nickel.

Slattery said Western Australia Nickel’s frontline employees would be offered another role within BHP or the choice of a redundancy.

The company will set up a A$20-million Community Fund to support local communities during the temporary suspension.

BHP pointed out that, since the 2020 financial year, it had invested about A$4.4-billion to sustain Western Australia Nickel as an ongoing business and to reorient its production to the battery and electric vehicle market.

This included establishing Australia’s first nickel sulphate plant to enhance downstream infrastructure, building two new mines and investing in the development of two solar farms and battery storage. Western Australia Nickel has recorded negative cash flow every year during this period.

Despite the significant capital investments, lower global nickel prices have contributed to Western Australia Nickel expecting to report an underlying earnings before interest, taxes and depreciation loss of about $300-million in the financial year to 30 June 2024.

In February, BHP announced a non-cash impairment charge of $3.5-billion before tax against the carrying value of Western Australia Nickel. As a result of the decision to temporarily suspend operations, BHP expects to recognise a further non-cash impairment charge of $0.3-billion before tax as an exceptional item in the 2024 financial results.

Any redundancy payments and other contractual costs triggered by the decision to place Western Australia Nickel into temporary suspension will be recognised in the 2025 financial results.

Slattery stressed that Western Australia remained an important investment destination for BHP globally, with investment in the state expected to exceed A$12-billion over the next five years.

“We will continue to work with all of our Western Australian partners to advance the economic prosperity of the state.”